Stanislaus County 2005-2006 - California Grand Jury Reports

July 03, 2006 — City of Riverbank Grand Jury Case #06-06

11 páginas 19 hallazgos 7 recomendaciones

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F1: The agency must provide written notice by mail of the proposed increase in fees or charges to property owners.

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R1: The agency must provide written notice by mail of the proposed increase in fees or charges to property owners.

F2: The agency must conduct a public hearing on the proposed increase in fees or charges.

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R2: The agency must conduct a public hearing on the proposed increase in fees or charges.

F3: The agency must receive voter approval to increase fees or charges with the exception of water, sewer and refuse collection fees. • The CGJ determined, under Proposition 218, that agencies are allowed to establish a formula or use an index for fees after sending notices to the property owners and conducting a public hearing to consider rate adjustments. As a result, it can increase rates, per the formula, or index on an annual basis without notifying property owners. Since this is not considered a new fee adjustment, but a continuation of the formula or index, this provision is allowed. This automatic adjustment still needs to meet the test of collecting revenues no greater than the actual cost to provide the service. The CGJ reviewed Proposition 218 and interviewed an expert legal consultant with regard to its implementation. 4 • Through sworn testimony and records review, the CGJ determined that the City in 2000 increased its sewer rates (property related fees and charges) by sending notices to 4,335 property owners and conducted a public hearing. Since this was an increase in sewer rates including an annual Consumer Price Index (CPI) adjustment, the City was not required to receive voter approval. In 2001, the City also increased its water rates including the adoption of a CPI adjustment. Procedurally, for the 2001 water adjustment, the City conducted a public hearing but failed to send notices to the property owners of record as required by Proposition 218. 3) The City is lax in its credit card policy…“has no receipts and no real records.” • The CGJ reviewed the Procurement Card Procedures approved by Council in September 2004. The procedures require that appropriate receipts be attached to the procurement card statements. The department head will review, sign, date and forward these statements to the Finance Department. The Finance Director shall review (for consistency with policy), approve, sign and date the procurement card statement. The CGJ reviewed procurement card statements from December 2004 through November 2005. It was found that there were numerous statements that did not have the appropriate signatures and/or dates (Table 3.) • The CGJ investigation determined that the procurement card holders were not always attaching receipts to their statements. • The CGJ reviewed the City’s Public Resource Policy (PRP), approved on April 24, 2006. The CGJ determined that the City has a policy specific to what types and categories of expenses they will pay. The PRP is a reasonably comprehensive expense policy. The CGJ noted that in the review of the procurement card statements some business lunches were being charged without complete explanation. The PRP does not set forth a definition of business lunches, nor does it establish guidelines for employees to be reimbursed for qualified business lunches. 4) The City did not properly bid nor obtain approval for the purchase of a truck- mounted hydraulic crane. (cid:121) In 2001 the City formally bid an upgrade and expansion of its Waste Water Treatment Plant (WWTP) with the bid going to Kirkwood-Bly, Inc. for $625,700. (cid:121) The project was funded through a State of California Department of Water Resources “State Revolving Loan” in the amount of $623,132. 5 (cid:121) During the execution of the Kirkwood-Bly, Inc. contract several change orders resulted in a savings to the project of approximately $100,000. (cid:121) The City was able to enhance the operation of the WWTP through the purchase of a truck-mounted hydraulic crane with the surplus funds. (cid:121) The City used its WWTP contractor, Kirkwood-Bly, Inc., to bid and purchase the crane. Table 1 reflects the results of Kirkwood-Bly, Inc.’s bidding process. Table 1 Summary of Proposed truck-mounted Crane Bids National Terex Manitowoc Item Model 500D Model TC3063 Model 1561C Cost of truck- $86,996.00 $93,258.00 $89,210.00 mounted crane Contractor labor, material and 4,349.80 4,662.90 4,460.50 markup Contractor Quote $91,345.80 $97,920.90 $93,670.50 Freight 1,800 0 0 Sale Tax and 8,102.63 8,509.79 8,140.41 Licensing Total $101,248.43 $106,430.69 $101,810.91 The state provided close oversight of the City’s purchases through an accounting of the payments to contractors and others. • After selection of the winning crane bidder, the City made some minor enhancements to the crane specification, which did not affect the bid process. (cid:121) The project engineer, Public Works Director and the contractor, approved the Change Orders to the Kirkwood-Bly Inc. contract. • The state approved the purchase for inclusion in the loan and paid the crane company. (cid:121) There were no funds that were expended without State approved invoices. 6 (cid:121) From the records and sworn testimony, the CGJ determined that the City did purchase a crane for approximately $100,000. The purchase process was accomplished through the City’s WWTP contractor who received three bids. The award was made to the lowest cost bidder and payment was made by the state. (cid:121) Although the WWTP was accomplished at a lower cost, the addition of the purchase of the truck mounted hydraulic crane was a major modification to the scope of the project. The Council did not approve the change order. The City has no process for Council review of major change orders to projects. 5) The City’s accounting system did not charge employee retirement benefits to the correct accounts for the City Attorney. The CGJ investigated several accounts to test for proper charges. The 2004 records indicate a specific journal entry to the City’s Retirement Account on behalf of the City Attorney. The City Attorney is not a participant in the City’s retirement program. Under sworn testimony, the City’s Senior Management Analyst/City Clerk reviewed the documents and did clarify that, in the report made public, an incorrect allocation was shown. The staff member also clarified that before payments are made to the retirement or insurance carriers, the personnel list and amounts are reviewed and checked for accuracy. The specific example cited was found to be in error. It was corrected and not paid as a retirement plan charge for the City Attorney. 6) Monies to pay for projects were charged to the wrong accounts. City Account 108 is established for sewer capital improvements. An item of the WWTP expansion included $15,649.40 for environmental mitigation. The WWTP project included repair of a collapsed levee and related environmental damage. The repair costs were charged to Account 108. This account is for future capital improvements to the existing sewer system. The required environmental mitigation was considered to be a capital improvement of the existing system and therefore an appropriate charge to Account 108. 7) The City claims that “growth will pay its way” yet it plans to reimburse a developer for installing infrastructure improvements using 40% of the sales tax revenues from a store in the development. (cid:121) The City entered into a development agreement with Browman Development Company for the Browman Development (Crossroads Community Specific Plan), Agreement No. 02-2003. The Council approved the agreement on a 3 to 0 vote with one abstention and one absent. The agreement provides for the developer to install the total public infrastructure improvements and later be reimbursed for all of his costs except for his allocated share of system development fees. The agreement provides a safety net for the developer. It 7 committed 40% of the sales tax revenue from a single existing Crossroad’s business to reimburse the developer if the business park did not attract tenants as planned. (cid:121) There have been new businesses within the development paying their share of project System Development Fees, thereby making funds available to reimburse Browman Development Company as well as generating additional revenues for the community. (cid:121) Under sworn testimony, the CGJ determined that no sales tax revenues have been used to reimburse the developer. The system development fees have been collected and used for this purpose. (cid:121) As an example of “how growth is paying its way” the City just increased its single family residential System Development Fee from approximately $11,000 to $25,354 per lot.

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R3: The agency must receive voter approval to increase fees or charges with the exception of water, sewer and refuse collection fees. • The CGJ determined, under Proposition 218, that agencies are allowed to establish a formula or use an index for fees after sending notices to the property owners and conducting a public hearing to consider rate adjustments. As a result, it can increase rates, per the formula, or index on an annual basis without notifying property owners. Since this is not considered a new fee adjustment, but a continuation of the formula or index, this provision is allowed. This automatic adjustment still needs to meet the test of collecting revenues no greater than the actual cost to provide the service. The CGJ reviewed Proposition 218 and interviewed an expert legal consultant with regard to its implementation. 4 • Through sworn testimony and records review, the CGJ determined that the City in 2000 increased its sewer rates (property related fees and charges) by sending notices to 4,335 property owners and conducted a public hearing. Since this was an increase in sewer rates including an annual Consumer Price Index (CPI) adjustment, the City was not required to receive voter approval. In 2001, the City also increased its water rates including the adoption of a CPI adjustment. Procedurally, for the 2001 water adjustment, the City conducted a public hearing but failed to send notices to the property owners of record as required by Proposition 218. 3) The City is lax in its credit card policy…“has no receipts and no real records.” • The CGJ reviewed the Procurement Card Procedures approved by Council in September 2004. The procedures require that appropriate receipts be attached to the procurement card statements. The department head will review, sign, date and forward these statements to the Finance Department. The Finance Director shall review (for consistency with policy), approve, sign and date the procurement card statement. The CGJ reviewed procurement card statements from December 2004 through November 2005. It was found that there were numerous statements that did not have the appropriate signatures and/or dates (Table 3.) • The CGJ investigation determined that the procurement card holders were not always attaching receipts to their statements. • The CGJ reviewed the City’s Public Resource Policy (PRP), approved on April 24, 2006. The CGJ determined that the City has a policy specific to what types and categories of expenses they will pay. The PRP is a reasonably comprehensive expense policy. The CGJ noted that in the review of the procurement card statements some business lunches were being charged without complete explanation. The PRP does not set forth a definition of business lunches, nor does it establish guidelines for employees to be reimbursed for qualified business lunches. 4) The City did not properly bid nor obtain approval for the purchase of a truck- mounted hydraulic crane. (cid:121) In 2001 the City formally bid an upgrade and expansion of its Waste Water Treatment Plant (WWTP) with the bid going to Kirkwood-Bly, Inc. for $625,700. (cid:121) The project was funded through a State of California Department of Water Resources “State Revolving Loan” in the amount of $623,132. 5 (cid:121) During the execution of the Kirkwood-Bly, Inc. contract several change orders resulted in a savings to the project of approximately $100,000. (cid:121) The City was able to enhance the operation of the WWTP through the purchase of a truck-mounted hydraulic crane with the surplus funds. (cid:121) The City used its WWTP contractor, Kirkwood-Bly, Inc., to bid and purchase the crane. Table 1 reflects the results of Kirkwood-Bly, Inc.’s bidding process. Table 1 Summary of Proposed truck-mounted Crane Bids National Terex Manitowoc Item Model 500D Model TC3063 Model 1561C Cost of truck- $86,996.00 $93,258.00 $89,210.00 mounted crane Contractor labor, material and 4,349.80 4,662.90 4,460.50 markup Contractor Quote $91,345.80 $97,920.90 $93,670.50 Freight 1,800 0 0 Sale Tax and 8,102.63 8,509.79 8,140.41 Licensing Total $101,248.43 $106,430.69 $101,810.91 The state provided close oversight of the City’s purchases through an accounting of the payments to contractors and others. • After selection of the winning crane bidder, the City made some minor enhancements to the crane specification, which did not affect the bid process. (cid:121) The project engineer, Public Works Director and the contractor, approved the Change Orders to the Kirkwood-Bly Inc. contract. • The state approved the purchase for inclusion in the loan and paid the crane company. (cid:121) There were no funds that were expended without State approved invoices. 6 (cid:121) From the records and sworn testimony, the CGJ determined that the City did purchase a crane for approximately $100,000. The purchase process was accomplished through the City’s WWTP contractor who received three bids. The award was made to the lowest cost bidder and payment was made by the state. (cid:121) Although the WWTP was accomplished at a lower cost, the addition of the purchase of the truck mounted hydraulic crane was a major modification to the scope of the project. The Council did not approve the change order. The City has no process for Council review of major change orders to projects. 5) The City’s accounting system did not charge employee retirement benefits to the correct accounts for the City Attorney. The CGJ investigated several accounts to test for proper charges. The 2004 records indicate a specific journal entry to the City’s Retirement Account on behalf of the City Attorney. The City Attorney is not a participant in the City’s retirement program. Under sworn testimony, the City’s Senior Management Analyst/City Clerk reviewed the documents and did clarify that, in the report made public, an incorrect allocation was shown. The staff member also clarified that before payments are made to the retirement or insurance carriers, the personnel list and amounts are reviewed and checked for accuracy. The specific example cited was found to be in error. It was corrected and not paid as a retirement plan charge for the City Attorney. 6) Monies to pay for projects were charged to the wrong accounts. City Account 108 is established for sewer capital improvements. An item of the WWTP expansion included $15,649.40 for environmental mitigation. The WWTP project included repair of a collapsed levee and related environmental damage. The repair costs were charged to Account 108. This account is for future capital improvements to the existing sewer system. The required environmental mitigation was considered to be a capital improvement of the existing system and therefore an appropriate charge to Account 108. 7) The City claims that “growth will pay its way” yet it plans to reimburse a developer for installing infrastructure improvements using 40% of the sales tax revenues from a store in the development. (cid:121) The City entered into a development agreement with Browman Development Company for the Browman Development (Crossroads Community Specific Plan), Agreement No. 02-2003. The Council approved the agreement on a 3 to 0 vote with one abstention and one absent. The agreement provides for the developer to install the total public infrastructure improvements and later be reimbursed for all of his costs except for his allocated share of system development fees. The agreement provides a safety net for the developer. It 7 committed 40% of the sales tax revenue from a single existing Crossroad’s business to reimburse the developer if the business park did not attract tenants as planned. (cid:121) There have been new businesses within the development paying their share of project System Development Fees, thereby making funds available to reimburse Browman Development Company as well as generating additional revenues for the community. (cid:121) Under sworn testimony, the CGJ determined that no sales tax revenues have been used to reimburse the developer. The system development fees have been collected and used for this purpose. (cid:121) As an example of “how growth is paying its way” the City just increased its single family residential System Development Fee from approximately $11,000 to $25,354 per lot. RECOMMENDATIONS Each allegation will be followed by the CGJ’s recommendation. 1) The City does not implement its external auditor’s recommendations consistently and/or in a timely manner. When the auditor’s report is presented to Council, the City Manager shall present an action plan for recommendations being considered for implementation. The report shall clearly justify the reasons why an audit recommendation is not going to be implemented. The Council shall review the action plan for consistency with the external auditor’s recommendation. The Council shall exercise its authority to ensure the City’s finance office is complying with good business practices and general accounting principles. 2) The City increased water and sewer rates without notification to property owners required by Proposition 218. • The City shall comply with the principles and provisions of Proposition 218 when raising water, sewer and refuse collection fees and charges. Specifically, when establishing a new formula or index, the City will properly mail notices to the affected citizens and conduct legal public hearings before adjustments are made to City service charges. • The CGJ recommends that annual “CPI index rate” adjustment be posted on the City’s web site and in its offices for viewing by the public. 8 3) The City is lax in its credit card policy…“has no receipts and no real records.” • The City Finance Director and employees shall follow the “Procurement CardProcedures” adopted by the Council in September 2004 by attaching receipts and having them properly authorized and dated. Not following the “Procurement Card Procedures” could potentially lead to litigation at the expense of the citizens of Riverbank. • The City’s “Public Resources Policy” shall be amended to include a business lunch policy. 4) The City did not properly bid nor obtain approval for the purchase of a truck- mounted hydraulic crane. The Council shall develop or modify its existing bidding ordinance to require any change order greater than 5% of the total project cost be submitted to Council for final approval. 5) The City’s accounting system did not charge employee retirement benefits to the correct accounts for the City Attorney. No recommendation 6) Monies to pay for projects were charged to the wrong accounts. No recommendation 7) The City claims that “growth will pay its way” yet it plans to reimburse a developer for installing infrastructure improvements using 40% of the sales tax revenues from a store in the development. No recommendation This report of the City of Riverbank is issued by the 2005-2006 Civil Grand Jury with the exception of one member of this Civil Grand Jury, who is a resident of Riverbank. This Grand Juror was excluded from all parts of the investigation, which included interviews, deliberations, and the making and acceptance of this report. This report is based on information obtained from outside sources with none of the information being obtained from the excluded Grand Juror. Table 2 Management Letter Recommendations Management Letter 1996 1997 1998 1999 2000 2004 2005 General Fund-Fund Balance Deficit X Reconciliation of Cash X X Internal Controls X X X X X Accounts Receivable X X X Investment Policy X X Operating Deficits-Enterprise Funds X X X Budgets Practices X Warrant Register X Self Insurance X X Encumbrances X X Consolidation of Funds-Storm Drain X X X X X Account Manual X X X X X Staffing-Finance X X Inactive Funds X X X X Community Development Block Grant X X Authorized Account Signers X Outstanding Checks & Reconciliation Procedure X Year 2000 Issue X X Purchase Orders X X Documentation For Manual Checks X Accounts Payable Invoices X Fixed Assets X Credit Card Policy X X Housing Grants/Loan Receivables X X Budget Controls X Accounting Procedures X Accounting Adjustments X 10 Table 3 Credit Card Statement Findings Year-Month Cardholder Signature & Date Approving Official & Date 2004-December Six Statements NOT Signed and NOT Dated Seven Statements NOT Approved and NOT Dated One Statement Signed but NOT Dated 2005-January Three Statements Signed and Dated Four Statements NOT Approved And NOT Dated One Statement NOT Signed and NOT Dated One Statement Approved and Dated 2005-February One Statement NOT Signed and NOT Dated Five Statements NOT Approved and NOT Dated Three Statement Signed and Dated One Statement Signed but NOT Dated 2005-March Four Statements Signed and Dated Five Statements NOT Approved and NOT Dated One Statement NOT Signed but Dated One Statement Approved and Dated One Statement Signed but NOT Dated 2005-April Five Statements Signed and Dated Five Statements NOT Approved and NOT Dated 2005-May Five Statements Signed and Dated Five Statement NOT Approved and NOT Dated One Statement Signed but NOT Dated One Statement NOT Approved but Dated 2005-June Eight Statements Signed and Dated Eight Statements NOT Approved and NOT Dated 2005-July Seven Statements Signed and Dated Six Statements NOT Approved and NOT Dated One Statement Approved but NOT Dated 2005-August One Statement Signed but NOT Dated Eight Statements NOT Approved and NOT Dated Seven Statements Signed and Dated 2005-September Six Statements Signed and Dated Seven Statements NOT Approved and NOT Dated One Statement NOT Signed and NOT Dated 2005-October Seven Statements Signed and Dated Seven Statements NOT Approved and NOT Dated 2005-November Four Statements Signed and Dated Four Statements NOT Approved and NOT Dated One Statement Signed but NOT Dated One Statement Approved and Dated 11

F4: The City did not properly bid nor obtain approval for the purchase of a truck- mounted hydraulic crane. (cid:121) In 2001 the City formally bid an upgrade and expansion of its Waste Water Treatment Plant (WWTP) with the bid going to Kirkwood-Bly, Inc. for $625,700. (cid:121) The project was funded through a State of California Department of Water Resources “State Revolving Loan” in the amount of $623,132. 5 (cid:121) During the execution of the Kirkwood-Bly, Inc. contract several change orders resulted in a savings to the project of approximately $100,000. (cid:121) The City was able to enhance the operation of the WWTP through the purchase of a truck-mounted hydraulic crane with the surplus funds. (cid:121) The City used its WWTP contractor, Kirkwood-Bly, Inc., to bid and purchase the crane. Table 1 reflects the results of Kirkwood-Bly, Inc.’s bidding process. Table 1 Summary of Proposed truck-mounted Crane Bids National Terex Manitowoc Item Model 500D Model TC3063 Model 1561C Cost of truck- $86,996.00 $93,258.00 $89,210.00 mounted crane Contractor labor, material and 4,349.80 4,662.90 4,460.50 markup Contractor Quote $91,345.80 $97,920.90 $93,670.50 Freight 1,800 0 0 Sale Tax and 8,102.63 8,509.79 8,140.41 Licensing Total $101,248.43 $106,430.69 $101,810.91 The state provided close oversight of the City’s purchases through an accounting of the payments to contractors and others. • After selection of the winning crane bidder, the City made some minor enhancements to the crane specification, which did not affect the bid process. (cid:121) The project engineer, Public Works Director and the contractor, approved the Change Orders to the Kirkwood-Bly Inc. contract. • The state approved the purchase for inclusion in the loan and paid the crane company. (cid:121) There were no funds that were expended without State approved invoices. 6 (cid:121) From the records and sworn testimony, the CGJ determined that the City did purchase a crane for approximately $100,000. The purchase process was accomplished through the City’s WWTP contractor who received three bids. The award was made to the lowest cost bidder and payment was made by the state. (cid:121) Although the WWTP was accomplished at a lower cost, the addition of the purchase of the truck mounted hydraulic crane was a major modification to the scope of the project. The Council did not approve the change order. The City has no process for Council review of major change orders to projects.

Recomendaciones relacionadas (1)

R4: The City did not properly bid nor obtain approval for the purchase of a truck- mounted hydraulic crane. (cid:121) In 2001 the City formally bid an upgrade and expansion of its Waste Water Treatment Plant (WWTP) with the bid going to Kirkwood-Bly, Inc. for $625,700. (cid:121) The project was funded through a State of California Department of Water Resources “State Revolving Loan” in the amount of $623,132. 5 (cid:121) During the execution of the Kirkwood-Bly, Inc. contract several change orders resulted in a savings to the project of approximately $100,000. (cid:121) The City was able to enhance the operation of the WWTP through the purchase of a truck-mounted hydraulic crane with the surplus funds. (cid:121) The City used its WWTP contractor, Kirkwood-Bly, Inc., to bid and purchase the crane. Table 1 reflects the results of Kirkwood-Bly, Inc.’s bidding process. Table 1 Summary of Proposed truck-mounted Crane Bids National Terex Manitowoc Item Model 500D Model TC3063 Model 1561C Cost of truck- $86,996.00 $93,258.00 $89,210.00 mounted crane Contractor labor, material and 4,349.80 4,662.90 4,460.50 markup Contractor Quote $91,345.80 $97,920.90 $93,670.50 Freight 1,800 0 0 Sale Tax and 8,102.63 8,509.79 8,140.41 Licensing Total $101,248.43 $106,430.69 $101,810.91 The state provided close oversight of the City’s purchases through an accounting of the payments to contractors and others. • After selection of the winning crane bidder, the City made some minor enhancements to the crane specification, which did not affect the bid process. (cid:121) The project engineer, Public Works Director and the contractor, approved the Change Orders to the Kirkwood-Bly Inc. contract. • The state approved the purchase for inclusion in the loan and paid the crane company. (cid:121) There were no funds that were expended without State approved invoices. 6 (cid:121) From the records and sworn testimony, the CGJ determined that the City did purchase a crane for approximately $100,000. The purchase process was accomplished through the City’s WWTP contractor who received three bids. The award was made to the lowest cost bidder and payment was made by the state. (cid:121) Although the WWTP was accomplished at a lower cost, the addition of the purchase of the truck mounted hydraulic crane was a major modification to the scope of the project. The Council did not approve the change order. The City has no process for Council review of major change orders to projects.

F5: The City’s accounting system did not charge employee retirement benefits to the correct accounts for the City Attorney. The CGJ investigated several accounts to test for proper charges. The 2004 records indicate a specific journal entry to the City’s Retirement Account on behalf of the City Attorney. The City Attorney is not a participant in the City’s retirement program. Under sworn testimony, the City’s Senior Management Analyst/City Clerk reviewed the documents and did clarify that, in the report made public, an incorrect allocation was shown. The staff member also clarified that before payments are made to the retirement or insurance carriers, the personnel list and amounts are reviewed and checked for accuracy. The specific example cited was found to be in error. It was corrected and not paid as a retirement plan charge for the City Attorney.

Recomendaciones relacionadas (1)

R5: The City’s accounting system did not charge employee retirement benefits to the correct accounts for the City Attorney. The CGJ investigated several accounts to test for proper charges. The 2004 records indicate a specific journal entry to the City’s Retirement Account on behalf of the City Attorney. The City Attorney is not a participant in the City’s retirement program. Under sworn testimony, the City’s Senior Management Analyst/City Clerk reviewed the documents and did clarify that, in the report made public, an incorrect allocation was shown. The staff member also clarified that before payments are made to the retirement or insurance carriers, the personnel list and amounts are reviewed and checked for accuracy. The specific example cited was found to be in error. It was corrected and not paid as a retirement plan charge for the City Attorney.

F6: Monies to pay for projects were charged to the wrong accounts. City Account 108 is established for sewer capital improvements. An item of the WWTP expansion included $15,649.40 for environmental mitigation. The WWTP project included repair of a collapsed levee and related environmental damage. The repair costs were charged to Account 108. This account is for future capital improvements to the existing sewer system. The required environmental mitigation was considered to be a capital improvement of the existing system and therefore an appropriate charge to Account 108.

Recomendaciones relacionadas (1)

R6: Monies to pay for projects were charged to the wrong accounts. City Account 108 is established for sewer capital improvements. An item of the WWTP expansion included $15,649.40 for environmental mitigation. The WWTP project included repair of a collapsed levee and related environmental damage. The repair costs were charged to Account 108. This account is for future capital improvements to the existing sewer system. The required environmental mitigation was considered to be a capital improvement of the existing system and therefore an appropriate charge to Account 108.

F7: The City claims that “growth will pay its way” yet it plans to reimburse a developer for installing infrastructure improvements using 40% of the sales tax revenues from a store in the development. (cid:121) The City entered into a development agreement with Browman Development Company for the Browman Development (Crossroads Community Specific Plan), Agreement No. 02-2003. The Council approved the agreement on a 3 to 0 vote with one abstention and one absent. The agreement provides for the developer to install the total public infrastructure improvements and later be reimbursed for all of his costs except for his allocated share of system development fees. The agreement provides a safety net for the developer. It 7 committed 40% of the sales tax revenue from a single existing Crossroad’s business to reimburse the developer if the business park did not attract tenants as planned. (cid:121) There have been new businesses within the development paying their share of project System Development Fees, thereby making funds available to reimburse Browman Development Company as well as generating additional revenues for the community. (cid:121) Under sworn testimony, the CGJ determined that no sales tax revenues have been used to reimburse the developer. The system development fees have been collected and used for this purpose. (cid:121) As an example of “how growth is paying its way” the City just increased its single family residential System Development Fee from approximately $11,000 to $25,354 per lot.

Recomendaciones relacionadas (1)

R7: The City claims that “growth will pay its way” yet it plans to reimburse a developer for installing infrastructure improvements using 40% of the sales tax revenues from a store in the development. (cid:121) The City entered into a development agreement with Browman Development Company for the Browman Development (Crossroads Community Specific Plan), Agreement No. 02-2003. The Council approved the agreement on a 3 to 0 vote with one abstention and one absent. The agreement provides for the developer to install the total public infrastructure improvements and later be reimbursed for all of his costs except for his allocated share of system development fees. The agreement provides a safety net for the developer. It 7 committed 40% of the sales tax revenue from a single existing Crossroad’s business to reimburse the developer if the business park did not attract tenants as planned. (cid:121) There have been new businesses within the development paying their share of project System Development Fees, thereby making funds available to reimburse Browman Development Company as well as generating additional revenues for the community. (cid:121) Under sworn testimony, the CGJ determined that no sales tax revenues have been used to reimburse the developer. The system development fees have been collected and used for this purpose. (cid:121) As an example of “how growth is paying its way” the City just increased its single family residential System Development Fee from approximately $11,000 to $25,354 per lot. RECOMMENDATIONS Each allegation will be followed by the CGJ’s recommendation.

F8: List of employees who have been issued procurement cards.

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F9: A copy of the purchasing activity on all procurement cards for the past twelve months with pre- and post-authorizations and rationale for purchases made.

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F10: Current and past City policies, procedures, manuals and administrative regulations.

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F11: Operations and maintenance budget.

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F12: City of Riverbank operating expense reports. 13. 1998 City of Riverbank Sewer Bond Prospectus.

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F14: City of Riverbank sewer rate study, Nolte and Associates, July 1997. 15. “City of Riverbank Policies Pertaining to Norms of Operation and Rules of Order and Procedures of City Council.” 16. City of Riverbank Policies and Procedures for credit cards, workers compensation, contracting, and bidding.

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F17: Mayors and Council Members Resource Guide 2005, the League of California Cities.

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F18: A Council resolution authorizing the City Manager to approve budget adjustments up to $5,000.

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F19: City of Riverbank Out-of-State travel policy.

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F20: City of Riverbank Capital asset policy.

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F21: Assessment and Property-Related Fee Reform - Proposition 218. SITE VISITS 1. Administrative offices of the City of Riverbank. FINDINGS Each allegation will be followed by the CGJ’s findings. 1) The City does not implement its external auditor’s recommendations consistently and/or in a timely manner. The CGJ reviewed the last ten years of audit reports and management letters (auditors recommendations) filed by the City’s Auditors. The City did not receive management letters for 2001 through 2003. It was determined that not all of the recommendations made by the auditor during this period were implemented consistently and in a timely manner. The records show that in some instances the auditor made the same findings and recommendations four years in a row. During sworn testimony it was stated that auditor’s recommendations are not always binding and the City can elect to implement what it thinks is important. The CGJ determined that the majority of the auditor’s recommendations were either implemented or are in the process of being implemented. (Table 2) 2) The City increased water and sewer rates without notification to property owners required by Proposition 218. • Proposition 218 became law in January 1997. The following are the procedures an agency must conduct to comply with Proposition 218 before increasing fees or charges to property owners: 1. The agency must provide written notice by mail of the proposed increase in fees or charges to property owners.

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F218: CGJ members also toured the City offices. Through sworn testimony and document review, the CGJ determined that the City did not implement all the recommendations of the auditor. In some instances, audit recommendations were repeated over four years before being implemented. It should be noted that the City, over time, has implemented or is in the process of implementing the auditor’s recommendations. In 2001, the City increased their water rates. A public hearing was held, but the City failed to mail notices to the affected property owners, a violation of Proposition 218. In reviewing procurement (credit) card statements and procedures between the period of December 2004 and November of 2005, it was found there were numerous statements that did not have the appropriate signatures and dates. In addition, it was determined that credit card holders were not always attaching receipts to their credit card statements. As a result, payments were being made without proper documentation, a violation of the City’s “Procurement Card Procedures.“ 1 A truck-mounted hydraulic crane in the amount of approximately $100,000 was purchased through a change order and funded from the State of California Department of Water Resources Revolving Loan and was not approved by the City Council. It was discovered that the city does not have a process for Council review of major change orders to projects. In regard to City accounts not being properly charged, the CGJ did agree with the complainant. Upon investigation, the CGJ found that the City had corrected the error prior to any funds being disbursed. Further investigation found that the City reviews charges to accounts prior to disbursement. The City collects a growth related System Development Fee from businesses locating in a new development. In the example cited by the complainant, the original developer advanced the total development infrastructure cost. He is currently being reimbursed, not from sales tax, but from the System Development Fees paid by other businesses locating in the development. The new “growth” businesses are paying System Development Fees and therefore “paying their way.” INTRODUCTION The CGJ received a complaint requesting the investigation of the mishandling of funds and internal accounting procedures by the City. During the investigation other areas of concern were identified and researched. ALLEGATIONS 1. The City does not implement its external auditor’s recommendations consistently and/or in a timely manner.

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July 03, 2006 — Stanislaus County Commissary Grand Jury Case # 06-30

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F1: Stanislaus County, San Joaquin County and Deuel Vocational Institute have established a commissary/canteen consistent with the California Penal code.

F2: Prices for commissary/canteen items are set by the Sheriff / Director of the correctional facility. 4

F3: Prices of commissary/canteen items are set according to the particular county or state policy. These policies and procedures differ between (1) Stanislaus County and San Joaquin County, and (2) Stanislaus County and DVI. • In Stanislaus County, the Custodial Account Clerk (CAC) oversees all of the jail store purchases4 and “prices charged in the store will be established by the CAC and approved by the IWFC. Adjustments will be made periodically to keep pace with inflation.” 5 In SJCJ, the Material Specialist is responsible for pricing items which may be priced at 40% above cost.6 While there is no percentage above cost stated in Stanislaus county policy and procedures, there is no significant difference in the process of pricing commissary items between this county and SJCJ. The CGJ found that there is also no significant difference between the prices of commissary items in the two counties, which are of similar size and within the same geographic region. • When comparing Stanislaus County commissary price lists and procedures to those of DVI, overall DVI procedures result in prices that are set lower. The DVI Prison Canteen Managers (PCMs) maintain an overall 65% average mark-up but may still have the option to set different mark-ups on non-contract selling price items.7 Although there are minimal differences in pricing DVI canteen items versus county commissary items, DVI canteen items were found to be priced lower than Stanislaus County commissary items.

F4: The list of commissary items differ from county to county, county to state, and facility to facility.

F5: Both state and county correctional facilities operate an IWF. CONCLUSION

July 03, 2006 — Stanislaus County Men's Jail Medical Care Grand Jury Case # 06-21

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F1: All relevant policies and procedures were not followed in providing complainant with necessary and appropriate medical treatment. • According to the County Manual regarding the subject of “Pre-Detention Medical Evaluation/Intake Health Screening Policy”, the arresting officer should have communicated the fact that the complainant had received emergency medical treatment from an emergency medical technician prior to arrest. In this case, the arresting officer’s report was filed the next day indicating evidence of trauma or acute illness. After reviewing booking records, no evidence could be found to confirm that the reception officer was made aware of this information so that he/she could then advise medical personnel of the complainant’s emergency medical treatment prior to booking in the jail. • The complainant did not receive medical treatment in a hospital although jail policy requires that this medical information be transferred and included in an inmate’s medical record. However, the complainant did receive emergency medical treatment from an emergency medical technician and the arresting officer was aware of this treatment. Based upon a comprehensive review of all of the complainant’s jail records, no evidence was found to confirm the booking officer was made aware of this treatment upon receiving the complainant in the jail. The jail policy only requires documented evidence of medical treatment be returned to jail to become part of inmate’s medical record if the arrestee is taken to an emergency treatment center (e.g. hospital.) However, the policy does not include reporting medical treatment if the inmate received treatment outside of a hospital (e.g. ambulance treatment.)8 • CFMG medical staff should have checked complainant’s blood pressure more frequently. Medical records indicate that the complainant had a diagnosis of hypertension (high blood pressure.) According to sworn testimony from the CFMG Regional Registered Nurse, high blood pressure should be monitored closely. In fact, she testified that good medical practice is to check blood pressure every four hours but current practice and procedure in the jail is to check the patient every 12 hours. In this case, jail medical records indicate that the complainant’s blood pressure was only checked approximately every 24 8 Reference to County Manual at . 5 hours. Although the medical screening form was completed correctly in this case, the timeliness of medical follow-up was questionable at best. • Jail personnel failed to follow the Jail Manual that provides when securing property of an arrestee, “prescribed medications belonging to an arrestee will immediately be turned over to medical staff unless otherwise directed by medical personnel.”9 Receiving jail personnel did not follow policy and instead stored the complainant’s nitroglycerin medication without handing over the medication directly to medical staff who could have then consulted with the inmate’s personal doctor about the inmate’s medical needs or allowed the inmate to carry some of his medications with him. • Although policy specifically states that “medical staff must give approval prior to allowing inmates to consume/take medication”,10 this approval could not have happened in this case because medical staff was never made aware that the complainant had nitroglycerin medication or that it was in jail storage with the complainant’s other personal property. Although the medical staff eventually administered nitroglycerin to the complainant, the undue delay could have been avoided had jail staff followed procedure.

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R1: In order to avoid inconsistent or inadequate medical care and treatment for inmates incarcerated in the jail or other correctional facilities in Stanislaus County, the Sheriff’s Department and CFMG shall revise existing policies and procedures and/or develop new policies and procedures. The purpose of these changes is to ensure medical staff and jail personnel communicate effectively and in a timely manner to provide quality health care for inmates incarcerated in Stanislaus County correctional facilities. This policy and procedure shall include the following: 8 • The arresting officer, upon arrival to jail, should report any known medical condition and/or known emergency medical treatment to booking officer/receiving officer who should then report/communicate this important medical information directly to medical staff to avoid any gaps in appropriate medical care and treatment provided to the inmate. The new procedure must consider the fact that written reports are not submitted typically on the same day of the arrest and since medical concerns require timely follow-up and treatment for the inmate, the arresting officer must report medical issues immediately. • When the jail medical screening form is completed and the clerk/officer has determined that further medical evaluation is necessary by medical staff, jail policy shall make all of the inmate’s records from arrest to booking available to medical staff, and to be reviewed by medical staff in a timely manner. • The jail medical screening form (Jail Form 171L) shall include a question about whether any emergency medical treatment was received before arrest or prior to booking. The inquiry should not be limited to only to emergency center (e.g. hospital) treatment. This more complete medical history would aid medical staff in providing timely and appropriate medical care for inmates. • Jail personnel shall not violate current jail procedure whereby medication must be delivered to medical to distribute to inmate as needed. • The County and CFMG shall improve its medical screening process to include a procedure by which officers will document and advise medical staff of prescribed medication held in custody to ensure inmate’s health is not compromised by withholding necessary prescribed medication. • CFMG medical staff should address inmate/patient needs and listen to legitimate medical complaints or concerns. CFMG management should consider implementing sensitivity training to medical nursing staff to ensure both quality and humane medical care is provided to inmates in all of the Stanislaus County Correctional Facilities. • In an effort to ensure quality medical treatment is provided to inmates in all of the Stanislaus County Correctional Facilities, the Sheriff’s Department and CFMG medical staff should establish a complaint process whereby inmates who have a complaint regarding medical treatment may complain to a supervising officer or supervising nurse to investigate and address the inmate’s medical concerns within a reasonable period of time. 9

F2: The existing jail and medical policies and procedures are not adequate due to the apparent lack of communication and documentation in providing medical treatment to the complainant. • Under sworn testimony, the CGJ found that CFMG medical staff did not receive copies of the arresting officer’s report. As a result, CFMG staff was not informed of the complainant’s prior emergency medical treatment or the complainant’s prescribed medication he carried on his person during the booking process. There is no evidence of timely and direct communication between the arresting officer, booking officer and treating medical staff in order to promptly advise medical staff of the inmate’s subsequent emergency medical treatment or the nitroglycerin medication he carried when he was arrested. • Based on review of both jail records and CFMG medical records, there was no evidence of written or verbal communication between the emergency medical technicians who treated the complainant prior to incarceration and CFMG medical staff in order to provide consistent and appropriate follow-up medical treatment. • Based on review of CFMG medical records and the complainant’s personal medical records, there is no evidence of written or verbal communication between treating medical staff and complainant’s primary care physician. Jail Manual at . Id at 10. 6 • Based on review of the complainant’s booking records, there is no evidence that the Intake Property Form completed by the receiving officer was made available to medical staff to advise medical staff of complainant’s nitroglycerin medication so that they could provide medical treatment accordingly. This information would have also provided the opportunity for medical staff to comply with jail policy to approve that the complainant have access to his own prescribed medication.11 • Jail personnel complied with county policy and jail policy by completing the pre- screening form for additional information and appropriately referred the inmate to the medical department. However, the form is inadequate because it does not prompt the question that inquires whether the inmate has received any medical treatment in the last 24 hours. If this question were included in the screening form, when CFMG medical staff reviewed the referral form, they would be immediately aware of potentially critical medical information to provide appropriate and timely medical treatment to the inmate.

F3: Other Findings: Lack of Quality Medical Treatment • Stanislaus County contracts with CFMG to provide all medical care for all correctional facilities within Stanislaus County. CFMG is responsible for training, supervising and managing its entire medical staff. CFMG medical staff are required to follow their own company policies and procedures; they are also required to follow all county and jail policies and procedures. • CFMG medical staff and the CFMG doctor should have followed-up with their patient (complainant) in a timely manner. Despite medical necessity noted in the records and the complainant’s known chronic medical conditions recorded by medical staff, medical records indicated that the CFMG medical doctor did not conduct a physical examination of the patient. Instead, the CFMG doctor conducted only a file review over 24 hours after the complainant was booked in jail. While the CFMG Physical Assessment form was completed with notations showing a blood pressure of 240/120, forehead and scalp trauma, hypertension and noted his allergy to diabetic medication, the CFMG doctor did not conduct a physical examination or meet the complainant in person. • According to the nurse’s sworn testimony, a diabetic’s blood sugar should be reviewed and monitored closely by medical staff. The complainant’s medical jail records indicate that he was diabetic and noted minimal necessary medical treatment for this condition. Id. 7 • According to jail medical records and sworn testimony from both witnesses interviewed, the complainant received high blood pressure medications but over 24 hours after his arrest. Given the complainant’s high blood pressure condition well documented in the medical records, and current blood pressure condition monitored in jail, the complainant’s personal doctors should have been contacted to determine if blood pressure medication was medically necessary immediately. • Within 2 days of being released from jail, as substantiated by medical records and emergency medical technician (EMT) records, complainant was transported via ambulance and hospitalized to treat an uncontrolled blood pressure condition. According to the complainant’s medical records, his cardiologist stated that the complainant’s unstable angina resulted from his lack of medical treatment while in jail (e.g. not taking his blood pressure medications appropriately.) • According to sworn testimony, new inmates are not automatically placed on prescribed medications due to current circumstances (e.g. if they have used drugs or alcohol prior to arrest). • According to CFMG policy and sworn testimony, patients who require nitroglycerin medication should carry at least 3 nitroglycerin pills on their person. In this case, according to booking records, the complainant’s nitroglycerin pills were removed from his possession upon booking and locked with his personal property to be accessed upon release from jail. Although CFMG medical staff administered nitroglycerin to the complainant, they did so over 30 hours after his arrest, which was unnecessarily delayed and could have been avoided. • According to sworn testimony, some CFMG nursing staff are insensitive to inmate/patient needs and do not listen to legitimate medical complaints or concerns.

April 28, 2006 — Patterson Del Puerto Health Care District Grand Jury Cases # 06-32, 06-33, 06-34, 06-38

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F1: The letter dated April 28, 2006 to the District establishes intent to litigate several of the issues identified in the complaints. Personnel and matters of litigation are out of the purview of the CGJ and as such those issues will not be addressed in this report.

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R1: Section 54954.3 (c) (no restriction on speech) The legislative body of a local agency shall not prohibit public criticism of the policies, procedures, programs, or services of the agency, or of the acts or omissions of the legislative body. Nothing in this subdivision shall confer any privilege or protection for expression beyond that otherwise provided by law.

F2: Under sworn testimony it was reported that on January 26, 2006, a member of the District Board interrupted and may have appeared to intimidate a member of the public wishing to speak during a public comment section of the agenda.

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R2: Section 54953.3 – (public not required to register) A member of the public shall not be required, as a condition to attendance at a meeting of a legislative body of a local agency, to register his or her name, to provide other information, to complete a questionnaire, or otherwise to fulfill any condition precedent to his or her attendance.

F3: Under sworn testimony, and viewed on DVD video, a member of the Board requested a speaker to identify himself or be removed from the building during the public comment portion of the agenda. The member of the public continued to speak without identifying himself and was not removed.

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R3: Section 54956 (Special Meeting Notice) A special meeting may be called at any time by the presiding officer of the legislative body of a local agency, or by a majority of the members of the legislative body, by delivering written notice to each member of the legislative body and to each local newspaper of general circulation and radio or television station requesting notice in writing. The notice shall be delivered personally or by any other means and shall be received at least 24 hours before the time of the meeting as specified in the notice. The call and notice shall specify the time and place of the special meeting and the business to be transacted or discussed. No other business shall be considered at these meetings by the legislative body. The written notice may be dispensed with as to any member who at or prior to the time the meeting convenes files with the clerk or secretary of the legislative body a written waiver of notice. The waiver may be given by telegram. The written notice may also be dispensed with as to any member who is actually present at the meeting at the time it convenes. The call and notice shall be posted at least 24 hours prior to the special meeting in a location that is freely accessible to members of the public.

F4: The District has its regular meeting monthly. During October 2005 through May 2006, the District had an equal number of regular and special meetings. All meetings were properly noticed and minutes prepared for each meeting.

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R4: Section 54957 (Closed Sessions) (a) Nothing contained in this chapter shall be construed to prevent the legislative body of a local agency from holding closed sessions with 6 the Attorney General, district attorney, agency counsel, sheriff, or chief of police, or their respective deputies, or a security consultant or a security operations manager, on matters posing a threat to the security of public buildings, a threat to the security of essential public services, including water, drinking water, wastewater treatment, natural gas service, and electric service, or a threat to the public's right of access to public services or public facilities. (b) (1) Subject to paragraph (2), nothing contained in this chapter shall be construed to prevent the legislative body of a local agency from holding closed sessions during a regular or special meeting to consider the appointment, employment, evaluation of performance, discipline, or dismissal of a public employee or to hear complaints or charges brought against the employee by another person or employee unless the employee requests a public session. (2) As a condition to holding a closed session on specific complaints or charges brought against an employee by another person or employee, the employee shall be given written notice of his or her right to have the complaints or charges heard in an open session rather than a closed session, which notice shall be delivered to the employee personally or by mail at least 24 hours before the time for holding the session. If notice is not given, any disciplinary or other action taken by the legislative body against the employee based on the specific complaints or charges in the closed session shall be null and void. (3) The legislative body also may exclude from the public or closed meeting, during the examination of a witness, any or all other witnesses in the matter being investigated by the legislative body. (4) For the purposes of this subdivision, the term "employee" shall include an officer or an independent contractor who functions as an officer or an employee but shall not include any elected official, member of a legislative body or other independent contractors. Nothing in this subdivision shall limit local officials' ability to hold closed session meetings pursuant to Sections 1461, 32106, and 32155 of the Health and Safety Code or Sections 37606 and 37624.3 of the Government Code. Closed sessions held pursuant to this subdivision shall not include discussion or action on proposed compensation except for a reduction of compensation that results from the imposition of discipline.

F5: The CGJ reviewed the agendas and minutes of the Board meetings. Contrary to the complainant’s allegations, the District’s Board meeting minutes reported any action taken in public or in closed session. 4

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R5: Section 54957 (b) (4) (employee definition) For the purposes of this subdivision, the term "employee" shall include an officer or an independent contractor who functions as an officer or an employee but shall not include any elected official, member of a legislative 7 body or other independent contractors. Nothing in this subdivision shall limit local officials' ability to hold closed session meetings pursuant to Sections 1461,32106, and 32155 of the Health and Safety Code or Sections 37606 and 37624.3 of the Government Code. Closed sessions held pursuant to this subdivision shall not include discussion or action on proposed compensation except for a reduction of compensation that results from the imposition of discipline.

F6: On December 17, 2005 the Board received two letters dated December 16, 2005 from the President of iCare. The first letter provided a 120-day notice to terminate the iCare contract under Article VI, section 6.3, and the second letter offered to renegotiate the contract. The Board posted a special meeting notice on December 23, 2005, for a December 26, 2005, meeting at the District headquarters. Included on the agenda was a closed session item, “Employee Performance Evaluation, Clinic Medical Director.” The minutes reflect that on coming out of closed session, in open session, the Board voted to accept the iCare letter of termination, and took no action regarding the offer to renegotiate.

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R6: Section 54954.5 (closed session description - Public Employee Performance Evaluation) For purposes of describing closed session items pursuant to Section 54954.2, the agenda may describe closed sessions as provided below. No legislative body or elected official shall be in violation of Section 54954.2 or 54956 if the closed session items were described in substantial compliance with this section. Substantial compliance is satisfied by including the information provided below, irrespective of its format.

F7: Under sworn testimony, the CGJ determined that the District’s Executive Director had been hired from a consulting firm that was providing contract services to the District. The consultant had been performing the work of the Executive Director and then was hired for that position as a permanent employee. In addition, the brother of the owner of the consulting firm, who was also an employee of the firm, was hired by the District to provide consulting services. Government Code section 87100 defines a conflict of interest as having the decision-maker have a financial interest in the hiring of staff or consultants. Although the CGJ found no conflict of interest involved, there are no competitive hiring practices in place at the District.

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R7: Section 54954 (e) (Specific agenda description of Closed Session item) With respect to every item of business to be discussed in closed session pursuant to Section 54957: THREAT TO PUBLIC SERVICES OR FACILITIES Consultation with: (Specify name of law enforcement agency and title officer, or name of applicable agency representative and title) PUBLIC EMPLOYEE APPOINTMENT Title: (Specify description of position to be filled) PUBLIC EMPLOYMENT Title: (Specify description of position to be filled) PUBLIC EMPLOYEE PERFORMANCE EVALUATION Title: (Specify position title of employee being reviewed) PUBLIC EMPLOYEE DISCIPLINE/DISMISSAL/RELEASE (No additional information is required in connection with a closed session to consider discipline, dismissal, or release of a public employee. Discipline includes potential reduction of compensation.)

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R8: Section 54957 (5) (reporting the actions coming out of a closed session) Action taken to appoint, employ, dismiss, accept the resignation of, or otherwise affect the employment status of a public employee in closed session pursuant to Section 54957 shall be reported at the public meeting 8 during which the closed session is held. Any report required by this paragraph shall identify the title of the position. The general requirement of this paragraph notwithstanding, the report of a dismissal or of the nonrenewal of an employment contract shall be deferred until the first public meeting following the exhaustion of administrative remedies, if any. Conflict of Interest

R9: Section 87100 (conflict of interest) No public official at any level of state or local government shall make, participate in making or in any way attempt to use his official position to influence a governmental decision in which he knows or has reason to know he has a financial interest. 9

September 06, 2005 — Stanislaus County Health Services Agency Grand Jury Case # 06-16

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F1: HSA did not have adequate funding to meet budget requirements from fiscal years 1997 through 2001 and 2003. Table 1 summarizes the financial results for HSA from 1997 through 2005. Line 18, Total Revenue and Gains, or Losses states that from 1997 through 2001 the HSA operated at a deficit ranging from $1.1 million to $8.2 million per year. In 2003 another deficit of $3.7 million was incurred. The years of 2002, 2004, and 2005 all operated within a balanced budget reflecting adequate County funding. Table 1 data was extracted from each of the County’s annual Independent Auditor’s Reports and Financial Statements for fiscal years 1997 through 2005. 5

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R1: Identification of clear goals and related performance standards

F2: The Plan contains a three-year financial projection incorporating reduced levels of financial support from the County beginning with $7.44 million in fiscal year 2005/06 and ending with $3.75 million in fiscal year 2007/08 plus additional County matching funds of $161,075. Planned net income for the three year plan is: Fiscal Year Net Income* 2005/06 $312,863 2006/07 ($107,630) 2007/08 ($2,013,283) * Parenthesis indicates a loss. Elimination of the losses is dependent on increased state and federal reimbursements through designation of selected clinics as an FQHC-LA or successful state legislation designed for that purpose. Tobacco Settlement

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R2: Lack of financial information

F3: In January 2006 the BOS approved the securitization of an additional $20 to $30 million of Tobacco Settlement revenue. The resulting bond proceeds would be deposited into an endowment fund, similar to the first Securitization Bond, and the interest income would be available for any general governmental purpose or for capital expenditures. Internal Funding Solutions

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R3: Internal Funding Solutions - Revenue from the Property Taxes/Current Secured and Property Taxes/In-Lieu Vehicle License be prioritized by the BOS so that a significant share is allocated to retire the internal note.

F4: Ancillary Services (Laboratory, Radiology, Pharmacy, and Rehabilitative Services) is currently located at CCII. The plan suggests that some of the Ancillary Service Clinics be relocated to CCII Family Practice Clinic building after it is vacant. However, if the Family Practice Clinic and the Residency Program are moved to Paradise, it would follow that the Ancillary Services would also move to Paradise to keep associated services near the patients and providers.

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R4: High general and administrative expenses

F5: It appears that the objective of the plan is to move HSA operations out of MAB and CCII. Most operations would be moved to the Paradise Medical Office where additional leased space is required. The annual lease cost of the Paradise Medical Office is $521,412 or $1.60/square foot for the existing lease. Table 2 Health Service Agency Facility Plan Current New Practice Location Location Notes 1 Family Practice Clinic CC2 Paradise Remodel 2 Residency Program CC2 Paradise Remodel 3 Family Practice Paradise NC 4 Family Planning Paradise NC 5 Primary Medical Care Paradise NC 6 Woman’s Health MAB McHenry To vacate MAB 7 High Risk Ob Gyn MAB McHenry To vacate MAB 8 Behavioral Health Paradise Paradise+ Additional leased space 9 Pediatrics MAB CC2 Family Practice Building If CC2 closed then MAB 10 Women, Infants, & Paradise Safety Children Center 11 Library Paradise Paradise+ Additional leased space 12 AMR Paradise Paradise+ Additional leased space 13 Specialty Clinics CC2 NC If CC2 is closed then MAB 14 Urgent Care CC2 NC If CC2 is closed then MAB 15 Community Services Paradise Paradise+ Additional leased Agency space Notes:

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R5: FQHC-LA Designation - The BOS continue to pursue FQHC-LA status; however, contingency plans should be developed identifying alternative sources of revenue to fund HSA in the event the County is unsuccessful in this effort.

F6: The County budget process includes a proposed and final budget with quarterly reports. This process allows for funding adjustments to be considered and approved by the BOS to meet any additional needs or reductions mid-year, and to take appropriate action as required in a timely fashion. FINDINGS The BOS approved the amount and level of mandated health care to indigents, low income and uninsured citizens of Stanislaus County, which was not consistent with their commitment to corresponding levels of funding. After many years of heavy HSA losses, in 2004 and 2005 the County chose to commit a source of non-tax base health related revenues to pay back the deficits over an eighteen-year period. This, however, did not lead to any additional or consistent sources of funds to HSA. There are other approaches for funding HSA that the BOS should evaluate and employ immediately. Loss of Funding Up until 1997, the County Hospital provided medical care to a large share of low income and indigent patients. To compensate the hospital for the higher cost of caring for low income patients they received additional revenue through “Medicare Disproportionate Share” funding. Under sworn testimony the CGJ found that the BOS received erroneous information leading them to believe that they would retain this funding even though they closed the hospital. Patients Served HSA provides health services and levels of care for patients that are beyond the level mandated. The County is required to provide health care by the Welfare and Institutions Code to a limited group of indigent patients. Indigent care represented only 11.6 percent of total costs for HSA. In fiscal years 2004 and 2005, the payer mix was: Payer Percent of Total Medi-Cal 40.6 Medicare 12.9 Medi-Cal Managed Care 9.2 Insurance 5.9 Personal Self Pay 7.9 County 1.7 Other 10.2 Indigent Care 11.6 Total 100% Deficits 1. HSA did not have adequate funding to meet budget requirements from fiscal years 1997 through 2001 and 2003. Table 1 summarizes the financial results for HSA from 1997 through 2005. Line 18, Total Revenue and Gains, or Losses states that from 1997 through 2001 the HSA operated at a deficit ranging from $1.1 million to $8.2 million per year. In 2003 another deficit of $3.7 million was incurred. The years of 2002, 2004, and 2005 all operated within a balanced budget reflecting adequate County funding. Table 1 data was extracted from each of the County’s annual Independent Auditor’s Reports and Financial Statements for fiscal years 1997 through 2005. 5 2. The Plan contains a three-year financial projection incorporating reduced levels of financial support from the County beginning with $7.44 million in fiscal year 2005/06 and ending with $3.75 million in fiscal year 2007/08 plus additional County matching funds of $161,075. Planned net income for the three year plan is: Fiscal Year Net Income* 2005/06 $312,863 2006/07 ($107,630) 2007/08 ($2,013,283) * Parenthesis indicates a loss. Elimination of the losses is dependent on increased state and federal reimbursements through designation of selected clinics as an FQHC-LA or successful state legislation designed for that purpose. Tobacco Settlement 1. In November 1998 the national tobacco industry and the states settled many areas of litigation involving the use of tobacco products. As a result, California received approximately $25 billion in annual payments through 2025. Stanislaus County participated in the settlement and was successful in receiving a share of the payments from the tobacco industry.

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R6: Level of detail in management information

F7: BOS/Staff Communications - The Auditor/Controller should issue independent, public reports and recommendations to the BOS concerning any County department that is experiencing or is projected to incur deficits. These reports and recommendations shall be done in a timely fashion to allow management to take aggressive action necessary to insure a balanced budget. The CEO shall provide monthly financial oversight reports to the BOS for County departments that are experiencing deficits. HSA should provide information or data directly to the BOS or through the Health Executive Committee. Elected officials should provide greater proactive oversight, guidance and direction.

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R7: Lack of standardized policies and procedures 11 Other specific issues were identified concerning organizational structure and the use of a hospital based “Meditech” billing system in a clinic environment. 3) In March 2005, a second review by The Camden Group reported several improvements since 1997 but suggested the following areas for continued review: (cid:121) Aggressive renegotiation of the Blue Cross Contract to increase revenue (cid:121) HSA administrative overhead is higher than industry benchmarks (cid:121) Write-offs are taken too soon rather than pursuing aggressive collection activities (cid:121) The need to improve the collection rates from Medicare, insurance and other payers (cid:121) HSA salaries and benefits are higher than industry benchmarks. (cid:121) Review of the SFMG contract for performance improvements (cid:121) Duplication of efforts between SFMG and HSA (cid:121) HSA currently uses a hospital based billing system rather than one specifically designed for clinics, which leads to additional staff time and inefficiency. (cid:121) Need to determine the cost/benefit ratio for the Residency Program. 4) In the CGJ’s review of the audited financial reports it was noticed that there were high levels of “Transfers Out” of HSA ranging from $14.7 million (1998) to $1.2 million (2000) with $7.0 million in 2005 (See Table 1.) Transfers Out represents dollars that flow out of HSA. Upon closer review and discussion with County staff it was determined that a significant amount of these out-going dollars are for operating expenses. 5) Although the Camden Group’s two reports were referenced in the Plan, under sworn testimony it was determined that they were not asked to review and comment on the effectiveness of the Plan. 6) California Government Code Section 29126.2 provides for the Auditor to review and issue financial reports and recommendations.

F8: Information Technology Systems - The BOS should establish specific policy for uniform, countywide implementation of standardized ITS. The policy should be focused on bringing the separate, splintered implementation into a uniform system over time. (Recommendations for Funding section is provided under that section.) 17 APPENDIX 1 Interviews Conducted 1. September 29, 2005 Stanislaus County Chief Executive Officer 2. October 5, 2005 Stanislaus County Managing Director, Health Services Agency 3. November 28, 2005 Stanislaus County Manager III – Auditor Controller 4. November 28, 2005 Chief Executive Officer, Golden Valley Health Center 5. December 7, 2005 Member of Stanislaus County Board of Supervisor 6. December 9, 2005 Stanislaus County Chief Financial Officer, Health Services Agency 7. December 15, 2005 Past Hospital Director 8. December 15, 2005 Stanislaus County Chief Financial Officer, Health Services Agency 9. January 10, 2006 Stanislaus County Deputy County Counsel 10. January 30, 2006 Stanislaus County Treasurer/Tax Collector 11. February 2, 2006 Stanislaus County Assistant Executive Officer 12. February 8, 2006 Stanislaus County Auditor/Controller 13. February 10, 2006 Stanislaus County Assistant Executive Officer 14. February 16, 2006 Stanislaus County Auditor/Controller 15. March 1, 2006 Stanislaus County Assistant Executive Officer 16. March 22, 2006 Stanislaus County Auditor/Controller 17. April 24, 2006 Stanislaus County Interim Managing Director, Health Services Agency 18 APPENDIX 2 Comparison of Adjacent County Health Plans Merced Alameda 1. Compliance w/ a. Medical Assistance Program MAP (Adults): Contracts with The County has 5 Medical Centers and 28 Govt. Code 17000 Mercy Medical Center (Catholic Health Care West) Community Based Organizations, which provide b. Child Health and Disability Prevention (Children) pays for indigent care through contracts. The Medical follow up services on a claims-made basis. Centers are operated as separate entities such c. Correctional and Juvenile Detention Services: Contracts as the Alameda County Medical Center. w/California Forensic Medical Group and paid by Sheriff and Probation out of General Fund.

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R8: Information Technology Systems - The BOS should establish specific policy for uniform, countywide implementation of standardized ITS. The policy should be focused on bringing the separate, splintered implementation into a uniform system over time. (Recommendations for Funding section is provided under that section.) 17

F10: Agenda Item – “Approval to proceed with Tobacco Settlement Asset-backed Bonds,” BOS, June 6, 2000.

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R10: January 30, 2006 Stanislaus County Treasurer/Tax Collector

F11: Agenda Item – “Final Budgets including an explanation of the Series 2004 Stanislaus County Note,” BOS, September 14, 2004. 12. “County of Stanislaus Series 2005 A Stanislaus County Note.” 13. Agenda Item - “Refunding, Refinancing of the 2002 Tobacco Settlement Bonds”, BOS, January 17, 2006. 14. “Tobacco Securitization Summary.” 15. Agenda Item – “Acceptance of a Health Services Agency – Strategic Assessment Report and Related Actions,” BOS, March 22, 2005.

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R11: February 2, 2006 Stanislaus County Assistant Executive Officer

F16: Agenda Item – “Proposed Facility Plan for the Health Services Agency Clinics and Related Services,” BOS, November 15, 2005.

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R16: March 22, 2006 Stanislaus County Auditor/Controller

F17: Agenda Item – “Approval of Health Services Agency Facility Plan,” BOS, December 6, 2005. 18. “FQHC Look-Alike Program Summary,” Bureau of Primary Health Care. 19. “RFP No.05-49-KJM Federally Qualified Health Center Look-Alike Consultant,” BOS, November 28, 2005.

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R17: April 24, 2006 Stanislaus County Interim Managing Director, Health Services Agency 18

F20: California Government Code section 29126.2 – The Auditor may issue reports and make recommendations.

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R20: California Government Code section 29126.2 – The Auditor may issue reports and make recommendations.

F21: California Assembly Bill 959, Assembly Member Frommer, February 18, 2005. 22. “Health Service Agency of Stanislaus County, Modesto, California, Medical Clinic Operational Assessment,” The Camden Group, November 25, 1998. 23. “Health Services Agency of Stanislaus County, Modesto, CA, Strategic Assessment,” The Camden Group, March 17, 2005.

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R21: California Assembly Bill 959, Assembly Member Frommer, February 18, 2005.

F24: Definition of Transfers-Out, Health Services Agency - Operating Transfers I In/Out, HSA Allocation, FY2001 through FY2005 Clinic and Ancillary Operating Transfers-Out Detail, County Auditor. 25. “April 7, 2006 Grand Jury Audit Exit Conference Meeting Minutes.” 26. “FY03/04 Benchmarking Report,” The Camden Group. 27. 2005 “Health Executive Committee Meeting Minutes.” 21 28. "Business Technology Strategy Power Point Summary” and supporting documents, County staff. 29. “County of Stanislaus California, Report to Management For the Fiscal year Ended June 30, 2005,” Macias, Gini and Company, LLP. 30. “Patient Volumes for the Last 10 Years and Projected Budget for 2006 through 2008,” November 16, 2005. 31. “Appointment of Interim Health Services Agency Managing Director,” CEO, January 24, 2006. 32. “Mid-Year Financial Report 2005/06,” February 28, 2006. 33. “Health Services Agency Organization Chart,” January 12, 2006. 34. “Financial Statements and Report of Independent Certified Public Accountants, Stanislaus Medical Center Enterprise Fund,” June 30, 1993 through June 30, 2005.

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R24: Definition of Transfers-Out, Health Services Agency - Operating Transfers I In/Out, HSA Allocation, FY2001 through FY2005 Clinic and Ancillary Operating Transfers-Out Detail, County Auditor.

F35: Agenda Item – “Discontinuing the Community Health Advisory Committee in favor of the Health Executive Committee,” September 23, 2003. 36. “The Third Annual IHSP Hospital 200-The Nation’s Most - and Least – Expensive Hospitals, Fiscal Year 2003/2004,” Institute For Health and Socio- Economic Policy, December 13, 2005. http://www.calnurses.org/research/pdfs/IHSP_Hospital_200_2005.pdf. 37. “Medicare Disproportionate Share (DSH) Payments,” Lynn Davis Boyle, June 5, 2006. http://www.aamc.org/advocacy/library/teachhosp/hosp0003.htm.

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R35: Agenda Item – “Discontinuing the Community Health Advisory Committee in favor of the Health Executive Committee,” September 23, 2003.

F38: Case 03-12-C, Civil Grand Jury Final Report 2001/2002, June 2002.

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R38: Case 03-12-C, Civil Grand Jury Final Report 2001/2002, June 2002.

Recomendaciones adicionales 22

No vinculadas a hallazgos específicos.

R9: January 10, 2006 Stanislaus County Deputy County Counsel

R12: February 8, 2006 Stanislaus County Auditor/Controller

R13: February 10, 2006 Stanislaus County Assistant Executive Officer

R14: February 16, 2006 Stanislaus County Auditor/Controller

R15: March 1, 2006 Stanislaus County Assistant Executive Officer

R18: “FQHC Look-Alike Program Summary,” Bureau of Primary Health Care.

R19: “RFP No.05-49-KJM Federally Qualified Health Center Look-Alike Consultant,” BOS, November 28, 2005.

R22: “Health Service Agency of Stanislaus County, Modesto, California, Medical Clinic Operational Assessment,” The Camden Group, November 25, 1998.

R23: “Health Services Agency of Stanislaus County, Modesto, CA, Strategic Assessment,” The Camden Group, March 17, 2005.

R25: “April 7, 2006 Grand Jury Audit Exit Conference Meeting Minutes.”

R26: “FY03/04 Benchmarking Report,” The Camden Group.

R27: 2005 “Health Executive Committee Meeting Minutes.” 21

R28: "Business Technology Strategy Power Point Summary” and supporting documents, County staff.

R29: “County of Stanislaus California, Report to Management For the Fiscal year Ended June 30, 2005,” Macias, Gini and Company, LLP.

R30: “Patient Volumes for the Last 10 Years and Projected Budget for 2006 through 2008,” November 16, 2005.

R31: “Appointment of Interim Health Services Agency Managing Director,” CEO, January 24, 2006.

R32: “Mid-Year Financial Report 2005/06,” February 28, 2006.

R33: “Health Services Agency Organization Chart,” January 12, 2006.

R34: “Financial Statements and Report of Independent Certified Public Accountants, Stanislaus Medical Center Enterprise Fund,” June 30, 1993 through June 30, 2005.

R36: “The Third Annual IHSP Hospital 200-The Nation’s Most - and Least – Expensive Hospitals, Fiscal Year 2003/2004,” Institute For Health and Socio- Economic Policy, December 13, 2005. http://www.calnurses.org/research/pdfs/IHSP_Hospital_200_2005.pdf.

R37: “Medicare Disproportionate Share (DSH) Payments,” Lynn Davis Boyle, June 5, 2006. http://www.aamc.org/advocacy/library/teachhosp/hosp0003.htm.

R39: Case 03-23, Civil Grand Jury Final Report 2002/2003, June 2003. • “Budget Unit Financing Use Detail, Health Services Agency” – June 30, 1997 though June 30, 2006. • “Proposed and Final Budget for 2004-2005,” Stanislaus County. • “2005-2006 Final Budget,” Stanislaus County. • “Stanislaus County Health Services Agency, Modesto California Billing Department Review and Update,” The Camden Group, May 23, 2000. 22

January 18, 2005 — City of Patterson Grand Jury Case # 06-01, 06-03

10 páginas 8 hallazgos 4 recomendaciones

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Hallazgos & Recomendaciones 8 hallazgos

F1: To not have a closed session

F2: To refer the check handling matter to the CGJ

F3: To not take any personnel action until the matter is completed

F4: To refer items on tonight’s (April 22, 2005) agenda to future Council meetings • On April 25, 2005, the City Attorney advised the Council, in writing, that the FOC exceeded its authority and recommended that they disassociate themselves from the report. 5 • At the May 3, 2005 Council meeting, the Mayor moved to approve the following statement… “The lack of the Council’s direct response to the Accounting Oversight Committee report is not to be construed as an endorsement of the report. It represents the view of the two committee members. The release of the report to the newspapers was not authorized by the City Council.” • The records indicate that the Council did not either endorse or reject the FOC’s Report. 4) Mishandling of building permit checks from 1999 to 2004 in the amount of $8.3 million. In the 1990s, the City contracted with Precision to handle their construction permit and inspection process due to its rapidly expanding developments. Precision was responsible for the day-to-day building permit activities. The CGJ investigated the building permit system at Patterson and found the following major flaws leading up to the 2004 breakdown in the processing of building permits and fees: • The Community Development Director, who presented Precision’s annual contract to the Council for renewal, was involved in the daily contract activities, and had the Precision contract employee handling permits in his department. The Director did not accept financial responsibility for administering and overseeing Section 2.3 of the Precision contract. • There was no particular city employee assigned the responsibility for the implementation of the Precision contract. • There was no department level training or communication to discuss the requirements of the Precision contract to ensure a citywide staff understanding of the contract. • Precision’s contract, section 2.3, requires that its employees not handle any permit fees and that payments go directly to finance to be deposited. The CGJ found that, inconsistent with the contract, a Precision employee was handling and holding permit fees for extended periods of times. • The contract had been in operation for nearly 8 years, and over the course of time city employees were familiar with the fact that Precision’s employees were handling permit fees. The lack of administration of the contract lead to complacency among city and contract employees resulting in improper processing of permits and handling of funds. Checks and cash were frequently left either on or in the building department’s desk overnight. 6 • The job of the Precision employee was to input the permit information into a building department computer system and give it a number. This information stayed within the building department and was not transferred either manually or electronically to the finance department. It was only when the Precision contract employee directly provided the permit and fees to the finance department that the information was transferred and funds deposited. • The CGJ determined through sworn testimony that the city’s accounting and building permit systems were not integrated, and thus made it impossible to cross check building permit activity between the finance and building departments. • One of Precision’s employees was asked by city staff to perform tasks outside the scope of its contract. This diverted the attention of the Precision employee away from its contract responsibilities and duties. 5) The City of Patterson’s response and action to address unresolved deposited checks breakdown. The CGJ determined through sworn testimony that the issue of undeposited building permit fee checks first came to the city’s attention formally in August of 2004 when triggered by a developer inquiry. Checks were found in drawers, on desks, and were taken home by a contract employee. Upon further research the City Manager ultimately advised the Council of the problem in October 2004. The Council took the following actions to resolve the problem: On November 1, 2004 the Council contracted with Maze & Associates to analyze the City’s $8.3 million undeposited building permits funds and the City’s processes for building permits. The March 18, 2005 report to the Council, Maze was able to reconcile all but $32,779.14. Since that day all checks, including the $32,779.14, have been reconciled. In addition, Maze calculated the lost interest on undeposited checks to determine the financial impact on the City. Total interest lost was reported to be $126,866.13. Precision Systems has agreed to reimburse the City for its expenses of the audit plus any lost interest. • Maze concluded its report with the following recommendations:

F5: The accounting for permits issued each month discussed in

F6: Precision Systems should be requested to obtain a SAS 70 audit of its system.

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R1: above should be used to reconcile the issued Permit file (currently held by Finance) with the amount of Precision’s bill. 6. Precision Systems should be requested to obtain a SAS 70 audit of its system. 7. The Community Development Department should analyze the effect of unrecorded construction on service levels and infrastructure already in place. (cid:121) In March of 2006, the CGJ conducted a site visit to the City of Patterson to observe their records and systems. During this visit the CGJ made the following observations: 1. The Building Permit log is available online and contains each permit’s status. There are no skipped sequences on the log. 2. The City has continued to research the remaining imbalance, which has now been reconciled. 3. All checks are only given to the finance department by the applicant and immediately deposited. 4. The City uses the “Springbrook Accounting” system. It is an integrated, modular system that allows the City to monitor the status of permits from any authorized computer terminal in any department. 5. The City has hired an “in-house” building official and changed contractors to perform the plan review and inspections. 6. There is a daily reconciliation of permit fees and monies collected. There is also a monthly reconciliation of permit fees and general ledger entries. 8 6) The ability of the CGJ to be a fair and unbiased body in resolving the allegations set forth, based on the fact that an FOC member was a past CGJ member. The FOC member in question was on the 2003/2004 CGJ. Each year a new 19- member jury panel is randomly selected by the Superior Court to investigate and write final reports. The CGJ requires a super majority vote of 12 members to take any action. A previous CGJ member has no knowledge or input into any current CGJ investigations. The FOC member in question is not a member of the 2005/2006 CGJ. RECOMMENDATIONS 1) The process in which the FOC was selected and the definition of its assignment. The CGJ recommends that the Patterson City Council develop a written policy regarding the establishment of Special Assignment/Ad Hoc Committees. This policy shall direct that committees authorized by the Council, include representation from the City Council, City employees and the public at large, as required to perform the committee’s assignment in an objective and professional manner. The Council shall clearly define the duties, responsibilities, scope, authority, timeline, and interim and final reports. 2) A possible conflict of interest or bias in regard to the members of the FOC and/or the Council. The CGJ recommends that the above written policy include the following: (cid:121) Candidates for appointment by the Patterson City Council to Special Assignment/Ad Hoc Committees should be questioned regarding any potential or ongoing economic or personal conflicts of interest or bias. (cid:121) Any real or perceived conflicts of interest shall disqualify the candidate from appointment to the committee. (cid:121) The policy shall also disqualify any Council member with any real or perceived conflicts of interest from participating in the selection, assignment, work, or reports of Special Assignment/Ad Hoc Committees. 9 3) The acceptance/approval of the FOC’s report and recommendations to the Council. The records indicate that the City Council did not either endorse or reject the FOC’s Report. The CGJ, through sworn testimony and the review of documents, has found that the scope of the report was beyond what was authorized by the Council. For this reason, the CGJ recommends that the FOC report be expunged from the City’s records. 4) Mishandling of building permit checks from 1999 to 2004 in the amount of $8.3 million. • The City of Patterson continues to implement the recommendations of the Maze & Associates’ report and that they are integrated into the City Policy and Procedures Manual. • When the City implements a new contract or related process, a responsible staff member shall be assigned as the contract manager and they shall be held responsible for the implementation, training, coordinating, and monitoring of the terms of the contract. • The City conduct periodic meetings involving contract implementation by staff and management and should be conducted to answer questions, address problems, and identify process improvements and other issues. 10

F7: The Community Development Department should analyze the effect of unrecorded construction on service levels and infrastructure already in place. (cid:121) In March of 2006, the CGJ conducted a site visit to the City of Patterson to observe their records and systems. During this visit the CGJ made the following observations:

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F2005: From testimony, the intent of the Council was to have the FOC oversee the building permit audit by Maze & Associates. On February 1, 2005, the Council approved a new scope of work for Maze & Associates to audit the services of the building department. The two-member FOC did not include representatives from the community, Maze & Associates or Precision Systems personnel. In addition, written direction by the Council in regard to the committee’s assignment was not established, including procedures to report their progress. 2) A possible conflict of interest in regard to the members of the FOC. (cid:121) The FOC was composed of only two members: a Council member who was also a past Finance Department employee, and a private citizen that was also a past City Treasurer. The CGJ’s investigation, including a review of the documents pertaining to the FOC’s assignment to work with and act as liaison to Maze & Associates, found no conflict of interest within the Committee. (cid:121) The CGJ interviewed the members of the FOC and the Mayor under sworn testimony, and concluded that the committee members did have a bias against City staff. Additionally, at the April 9, 2005 meeting, the Mayor exercised his influence with the FOC to expand the Committee’s report to include personnel issues. 4 (cid:121) The CGJ also discovered that the Mayor had an outstanding check (valued at approximately $30,000) on file in the Building Permit office (for over a year) and that his check was one of the undeposited checks. This appears to represent a type of economic interest that would disqualify him from this issue under Government Code section 87100. Government Code section 87100 - No public official at any level of state or local government shall make, participate in making or in any way attempt to use his official position to influence a governmental decision in which he knows or has reason to know he has a financial interest. 3) The acceptance/approval of the FOC report and recommendations to the Council. • The FOC met on April 9, 2005, to discuss the final draft of their report. In addition to the two committee members, the Mayor also attended this meeting. Under sworn testimony it was determined that the FOC decided to expand its initial draft report to include City personnel matters. • On April 14, 2005, prior to the Council receiving the FOC report a Committee member prematurely released its report to the press. Prior to the next Council meeting on April 15, 2005, coverage of the report was in the Patterson Irrigator. • The reports by Maze & Associates and the FOC were put on the agenda for the Council meeting of April 19, 2005. • At the April 19, 2005 Council meeting, there was substantial public comment concerning the FOC’s report. There was no action taken by the Council other than to reschedule a closed session meeting for April 22, 2005, to consider the FOC’s report. • According to the April 22, 2005 meeting minutes, the Council did not go into closed session but approved the following: 1. To not have a closed session 2. To refer the check handling matter to the CGJ 3. To not take any personnel action until the matter is completed 4. To refer items on tonight’s (April 22, 2005) agenda to future Council meetings • On April 25, 2005, the City Attorney advised the Council, in writing, that the FOC exceeded its authority and recommended that they disassociate themselves from the report. 5 • At the May 3, 2005 Council meeting, the Mayor moved to approve the following statement… “The lack of the Council’s direct response to the Accounting Oversight Committee report is not to be construed as an endorsement of the report. It represents the view of the two committee members. The release of the report to the newspapers was not authorized by the City Council.” • The records indicate that the Council did not either endorse or reject the FOC’s Report. 4) Mishandling of building permit checks from 1999 to 2004 in the amount of $8.3 million. In the 1990s, the City contracted with Precision to handle their construction permit and inspection process due to its rapidly expanding developments. Precision was responsible for the day-to-day building permit activities. The CGJ investigated the building permit system at Patterson and found the following major flaws leading up to the 2004 breakdown in the processing of building permits and fees: • The Community Development Director, who presented Precision’s annual contract to the Council for renewal, was involved in the daily contract activities, and had the Precision contract employee handling permits in his department. The Director did not accept financial responsibility for administering and overseeing Section 2.3 of the Precision contract. • There was no particular city employee assigned the responsibility for the implementation of the Precision contract. • There was no department level training or communication to discuss the requirements of the Precision contract to ensure a citywide staff understanding of the contract. • Precision’s contract, section 2.3, requires that its employees not handle any permit fees and that payments go directly to finance to be deposited. The CGJ found that, inconsistent with the contract, a Precision employee was handling and holding permit fees for extended periods of times. • The contract had been in operation for nearly 8 years, and over the course of time city employees were familiar with the fact that Precision’s employees were handling permit fees. The lack of administration of the contract lead to complacency among city and contract employees resulting in improper processing of permits and handling of funds. Checks and cash were frequently left either on or in the building department’s desk overnight. 6 • The job of the Precision employee was to input the permit information into a building department computer system and give it a number. This information stayed within the building department and was not transferred either manually or electronically to the finance department. It was only when the Precision contract employee directly provided the permit and fees to the finance department that the information was transferred and funds deposited. • The CGJ determined through sworn testimony that the city’s accounting and building permit systems were not integrated, and thus made it impossible to cross check building permit activity between the finance and building departments. • One of Precision’s employees was asked by city staff to perform tasks outside the scope of its contract. This diverted the attention of the Precision employee away from its contract responsibilities and duties. 5) The City of Patterson’s response and action to address unresolved deposited checks breakdown. The CGJ determined through sworn testimony that the issue of undeposited building permit fee checks first came to the city’s attention formally in August of 2004 when triggered by a developer inquiry. Checks were found in drawers, on desks, and were taken home by a contract employee. Upon further research the City Manager ultimately advised the Council of the problem in October 2004. The Council took the following actions to resolve the problem: On November 1, 2004 the Council contracted with Maze & Associates to analyze the City’s $8.3 million undeposited building permits funds and the City’s processes for building permits. The March 18, 2005 report to the Council, Maze was able to reconcile all but $32,779.14. Since that day all checks, including the $32,779.14, have been reconciled. In addition, Maze calculated the lost interest on undeposited checks to determine the financial impact on the City. Total interest lost was reported to be $126,866.13. Precision Systems has agreed to reimburse the City for its expenses of the audit plus any lost interest. • Maze concluded its report with the following recommendations: 1. The numerical sequence of building permits issued must be accounted for at least monthly.

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Recomendaciones adicionales 3

No vinculadas a hallazgos específicos.

R2: A possible conflict of interest or bias in regard to the members of the FOC and/or the Council. The CGJ recommends that the above written policy include the following: (cid:121) Candidates for appointment by the Patterson City Council to Special Assignment/Ad Hoc Committees should be questioned regarding any potential or ongoing economic or personal conflicts of interest or bias. (cid:121) Any real or perceived conflicts of interest shall disqualify the candidate from appointment to the committee. (cid:121) The policy shall also disqualify any Council member with any real or perceived conflicts of interest from participating in the selection, assignment, work, or reports of Special Assignment/Ad Hoc Committees. 9

R3: The acceptance/approval of the FOC’s report and recommendations to the Council. The records indicate that the City Council did not either endorse or reject the FOC’s Report. The CGJ, through sworn testimony and the review of documents, has found that the scope of the report was beyond what was authorized by the Council. For this reason, the CGJ recommends that the FOC report be expunged from the City’s records.

R4: Mishandling of building permit checks from 1999 to 2004 in the amount of $8.3 million. • The City of Patterson continues to implement the recommendations of the Maze & Associates’ report and that they are integrated into the City Policy and Procedures Manual. • When the City implements a new contract or related process, a responsible staff member shall be assigned as the contract manager and they shall be held responsible for the implementation, training, coordinating, and monitoring of the terms of the contract. • The City conduct periodic meetings involving contract implementation by staff and management and should be conducted to answer questions, address problems, and identify process improvements and other issues. 10

City of Modesto Grand Jury Case # 06-20

8 páginas 3 hallazgos 3 recomendaciones

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Hallazgos & Recomendaciones 3 hallazgos

F1: Accuracy of records for revenues and expenditures of CFD 1997-1 funds. The City of Modesto presented the CGJ with several financial audits and account reviews for the North Beyer Park CFD 1997-1. The spreadsheets show the revenue and expenses for CFD1997-1. The Consultant’s Performance Audit of CFD 1997-1, as reviewed by the City of Modesto’s Audit Committee at their November 22, 2004 meeting, verified the accuracy of the spreadsheets. These records, and the responses from City Staff during sworn testimony before the CGJ, indicate that the City of Modesto has maintained an accurate and responsible record of the taxes collected and the expenditures paid from the CFD 1997-1 account. The Capital Investment Plan indicates the anticipated future expenditures for CFD 1997-1.

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R1: Accuracy of records for revenues and expenditures of CFD 1997-1 funds. • The records provided to the CGJ established that the City of Modesto has maintained an accurate and responsible record of the taxes collected and the expenditures paid for the CFD 1997-1 account. No recommendation.

F2: Level of management the City of Modesto exercises in the administration of Community Facilities District funds; the amount of funds being spent for administrative and consulting fees, and the control of consultant charges. Management of CFDs Administrative direction to local agencies desiring to create a Community Facilities District is provided in Government Code Section 53312.7(a), “On or after January 1, 1994, a local agency may initiate proceedings to establish a district pursuant to this chapter only if it has considered and adopted local goals and policies concerning the use of this chapter.” (“Goals and Policies to be Adopted Before Initiation of Proceedings to Establish District.”) The City of Modesto has met this requirement by adopting “Policies And Procedures for the Formation, Annexation and Administration of Community Facilities Districts Created Pursuant to the Provisions of The Mello-Roos Community Facilities Act Of 1982.” (adopted September 3, 1996 Policy Manual.) The Policy Manual specifies the City’s intent to use the Mello-Roos Act to provide for the financing of City owned and operated infrastructure and services. The Policy Manual, p. 26, further establishes the staff/administrative infrastructure to oversee CFDs and defines the duties of the District Administrator post formation/post annexation. Currently, a division within the City Manager’s office oversees the CFDs for the City of Modesto. The City Manager, one Senior Structural Engineer, one Administrative Office Assistant, and two CFD Administrative Officers (who share one position) comprise the CFD Administration division. Services paid from the CFD 1997-1 account The City of Modesto, as the legislative body, has established administrative and financial services for the management of the nine (9) CFDs within the City’s jurisdiction. CFD administration employees bill the CFD for working time spent on CFD services, including responding to questions from citizens, providing reports and documents, and an annual audit/ financial reporting program for CFD 1997-1. The City has been utilizing consultants to perform some of these services. During sworn testimony before the CGJ several City staff members contended that this section of Policy Manual indicates that these are necessary administrative/ financial services and the “CFD must pay its own way.” Government Code Sections 6250 through 6276.48, The California Public Records Act, includes inquiries regarding CFDs. Under this Code, public agencies must give access to view the records of the CFD at no cost, and if a citizen requests a copy of that report, he can only be charged the direct cost of duplication, usually $.10 to $.25 per page. Charges for search, review and deletion are not allowed. The Policy Manual does not define “services.” The CGJ reviewed the definition of services applicable to a CFD, as stated in Government Code Section 53313, “Services Which May Be Provided.” The definition of services eligible under this government code section does not support the City’s practice of charging administrative fees for answering questions, committee work, or other administrative functions. Government Code section 53343, “Use of Charges,” states, “A Community Facilities District may be established under this chapter to finance any one or more of the following types of services within an area …” Administrative, audit, and consulting fees are not included as authorized “services.” Government Code Section 53343.1 “Annual Report” only requires this report if requested by a person who resides in or owns property in the district. The district may charge a fee for the report not exceeding the cost of preparing the report. There is no provision for an administrative services component. The Policy Manual ( ) states: “all City administrative and consultant costs, including those of the District Administrator, related to administration of a CFD and incurred after formation shall be included within the special tax formula (emphasis added) in accordance with applicable provisions of law.” However, CFD 1997-1, as one of the first Community Facilities Districts enacted by the City of Modesto and unlike current CFD programs, does not have the “special tax formula” (an administrative account.) The City Attorney’s office informed the CGJ that, “There are two special tax components in the North Beyer Community Facilities District: a one-time Facilities Special Tax and an annual Maintenance Special Tax. Administrative expenses are included within the Maintenance Special Tax component.” 5 Based on the time of issuance of the administrative component section of the Policy Manual (July 18, 2000), the lack of the special tax formula, the cited Government Code sections, and the opinion from the City Attorney’s office, the administrative fees policy does not apply to CFD 1997-1. To date, the CFD has been unable to construct the medians, because (1) insufficient tax monies have been collected for the construction projects and (2) the medians cannot be installed until property owners/developers on both Oakdale Road and Coffee Road dedicate the necessary right-of-way to construct the full roadway width. Additionally, while CFD 1997-1 have been sitting for nine years without being used for the purposes for which they were intended, the city has continued to deduct CFD funds to pay for services not authorized by CFD 1997-1 language or account design. The City’s practice of charging for annual audits and reports is not supported by Government Code Sections 53343, 53343.1, or the Policy Manual. Therefore, the CGJ finds that the City is performing unnecessary financial functions and charging in a manner not provided for in the language or design of CFD1997-1. The City may not charge administrative, auditing, or consulting fees against CFD 1997-1 until CFD 1997-1 enters its landscape maintenance phase.

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R2: Level of management the City of Modesto exercises in the administration of Community Facilities District funds; the amount of funds being spent for administrative and consulting fees, and the control of consultant charges. • The Mello-Roos Community Facilities Act Of 1982 allows the agency to charge for the formation, annexation, and administration of a new CFD. The agency can charge for bond development and sales, but the agency cannot charge citizens for inquires, questions, request for copies, etcetera. The records indicate that: a. The City of Modesto Resolution 2000-376, adopted July 18, 2000, permitting a special tax formula for administrative fees, but Resolution 2000-376 was adopted after the formation of CFD 1997-1, and therefore does not apply to CFD 1997-1. b. Neither the Government Codes nor the Policy Manual support the current program of annual financial audits and reports. Therefore, Government Code 53343.1, which allows charges for specified facilities and services only, does not support the City’s current practice of charging CFD 1997-1 for administrative and financial “services” and is not allowed. • The CGJ recommends that fees deducted from CFD 1997-1 accounts for administrative and/or financial services shall be reimbursed to CFD 1997-1 account by the City of Modesto within 180 days. The CGJ further recommends that this account be frozen against any further charges unless specified as approved expenditures by the language of the CFD 1997-1. 7

F3: The provision in law for an election to change an existing Community Facilities District is found in the following sections of the Government code. Government Code Section 53332(a). “Petition For Changes In Facilities, Services, Or Taxes”: If a petition signed by 25 percent or more of the registered voters residing in the district, or by the owners of 25 percent or more of the territory within the district, is filed with the legislative body requesting that proceedings be commenced to change the types of public facilities or services financed by the district or that the rate or method of apportionment of an existing special tax be changed, or that a new special tax be levied, the legislative body shall within 40 days thereafter adopt a resolution of consideration in the form specified in Section 53334 to make those changes within the community facilities district … The following exchange took place between the CGJ and a representative of the City Attorney’s Office: CGJ: “If a proposal to dissolve a community facilities district is submitted to the qualified electors of the district and two-thirds (2/3) of the qualified electors are in favor of the dissolution, is the vote binding on the City?” Interviewee: “Government Code Section 53338(b) provides that if two thirds of the votes cast on a proposition are in favor of the proposed change, then the legislative body is required to adopt a resolution determining that the proposed change is lawfully authorized.” 6 The law clearly provides a method for altering a CFD by election. The outcome of that election is binding on the City of Modesto as the legislative body. However, according to Government Code Section 53332(b), “Any petition filed by the landowners shall be accompanied by the payment of the fee which the legislative body determines. That fee may be imposed in an amount sufficient to compensate the legislative body for all costs incurred in conducting proceedings to change the district pursuant to this article.”

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R3: California law provides for an election to change an existing Community Facilities District and specifies under what circumstances. • Government Code 53332, petition for changes in facilities, services, or taxes, establishes that there is provision for altering a CFD and the decision of the electors is binding on the City of Modesto as the legislative body. No recommendation. 8

City of Modesto Grand Jury Case # 06-26

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Hallazgos & Recomendaciones 8 hallazgos

F1: Notification of Water Rates and Justification for Rates Del Rio alleged that the notice did not contain proper notification of the time for a public hearing and a justification for the new rates. The CGJ found that the notice contained the following information: • The District mailed the notice, “Proposed Water Rate Increase and of Public Hearing” to all property owners in the District. • A public hearing was scheduled for November 23, 2004, for “hearing” public testimony and receiving written protests on the proposed “Water Rate Increase.” • The rate schedule for 2005 and ensuing years was included for both flat rate (by lot size) and metered rates (by size of pipe and usage.) • The notification stated that the proposed rates would take effect January 1, 2005. • The notice stated that the increase was needed to fund operation, maintenance, and replacement costs. The improvements were necessary to rehabilitate, upgrade, and replace the existing water distribution system. • A protest form was included with the notice which gave instructions on where and when to return it.

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R1: Notification of water rates and justification for rates

F2: Proportional Costs Del Rio alleged that the water rate policy violated the Proposition’s provision requiring that a parcel be charged only its proportional costs. Fees collected under the proportional cost provision of Proposition 218, fall into four areas. They include: (cid:121) Revenues derived from fees shall not exceed the funds required to provide the property-related service. (Article XIII D, §6 (b)(1).) (cid:121) Revenues shall not be used for any purpose other than that for which the fee was imposed. (Article XIII D §6 (b)(2).) (b)(3).) (cid:121) The amount of a fee imposed may not exceed the proportional cost of the service attributed to the service. (Article XIII D §6 (b)(4).) (cid:121) The fee imposed must be for a service used by, or immediately available to the owner in question and not based upon potential or future use of a service. (Article XIII D §6 (b)(4).) Under sworn testimony, the CGJ determined that it would be impossible to develop any rate schedule if each parcel were charged just what it costs for individual water delivery. As one of Modesto’s legal experts testified: “If you had fifty-thousand customers, you’d have fifty-thousand rates, and we don’t think the law meant that. It would be impractical and impossible to calculate rates that way.” (cid:121) The Modesto legal counsel stated the issue of proportionality in the following way: “It’s just like getting car insurance or life insurance. It is cheaper for everybody if we are all in a pool. You can spread out the cost. I do not think when they drafted (Proposition) 218 that they thought about that. If you take the argument that Del Rio is entitled to a different rate than Modesto or Grayson, it’s the same thing. Then it is a slippery slope and you are going to slide all the way to the bottom where water rates are calculated house by house, street by street.” (cid:121) The CGJ determined through extensive investigation that there was considerable disagreement between Del Rio’s legal council and the City of Modesto’s legal counsel as to how each of these sections of the law is to be interpreted and applied. The CGJ did not take a position on these opinions of law. It is up to the courts to make these determinations.

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R2: The water rates imposed in January 2005 are now under review by the City. A reported shortfall of monies collected under the rate schedule is being investigated by the City of Modesto. The CGJ investigated the following:

F3: Use of Water Funds As a result of the 1999/2000 Civil Grand Jury Report, water and other funds are no longer being transferred into the general fund. As of September 1999 funds are kept within the Modesto City Water District in separate accounts known as Enterprise Funds. (Enterprise Funds are funds designed for specific uses and are established for accounting purposes. Defined in section 1.08, b. (1) of the State of California “Accounting Standards and Procedures for Counties,” May 2003.) According to sworn testimony, these funds are used to provide service to the entire system and designated for the projects as they occur. There is an accumulation of reserve funds within the 6 Enterprise Fund to pay for capital projects. According to the Foresight Report, the rates should “generate revenue adequate to meet the utility’s operating costs as well as projecting new capital and sources of supply costs.” (cid:121) The CGJ determined that the District is accounting for water costs and revenues separately from other non-water related accounts.

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R3: Doering, John P., Assistant County Counsel, Stanislaus County “Proposition 218 Overview,” March 14, 2002

F4: Access to Information (cid:121) The CGJ found that obtaining specific information concerning actual costs of water delivery and cost of usage to specific geographic areas is extremely difficult to obtain from the City. The Del Rio community tried repeatedly to get such information so they could analyze what it cost Modesto to provide water to its area and the rest of the District. (cid:121) The CGJ attended one public forum and a City Council meeting and found that, in both instances, specific water delivery cost information justifying the rates is non-existent or vague. Decisions on how to “fix” the schedule or even to determine if there is or is not enough money to run the system cannot be done with any validity when it is so difficult to get detailed financial information. Under sworn testimony, the Chief Financial Officer stated that the city’s financial computer system is not readily able to produce reports that provide detailed financial information on specific costs. (cid:121) The City Public Works Department did supply the CGJ with the information requested regarding a list of metered and flat rate properties and a comparison sample of metered customers in Del Rio and the City. The information arrived almost two months after the request was made (one month after due). This delay could be the result of a lack of ease within the system to retrieve such data. An upgraded system would serve the city and the public well, so that essential data from which to determine water rates and other utilities can be readily available.

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R4: Access to information

F5: Flat and Metered Rate schedules The former rate schedule was a three zone system in which residential customers differed in the amount paid, dependent upon which geographical area the customer resided. Zone 3 had the lowest rate, followed by the other two zones. Under the new water rate system, the former three zone system with different rates was replaced by three different rate classifications: (cid:121) Residential (cid:121) Industrial (cid:121) Commercial 7 All residential areas are billed under one of two rates, depending if their area is metered or on a flat rate. The “blending” of rates, from the previous three zones, equalizes the burden of any one area having to pay more than another area. (cid:121) Flat rate schedules are based upon lot size, regardless where the property lies within the District (Appendix 1 for details.) (cid:121) A metered rate schedule is based upon the amount of water consumed and is the same for all residential areas within the District (Appendix 1 for details.) (cid:121) In December 2005 there were 55,185 customers within the Modesto jurisdiction (City limits) that were either on a flat rate schedule or were metered but billed at a flat rate. In the Modesto jurisdiction 9998 were metered and billed as such. (cid:121) Within the areas of the following cities that are served by the Modesto Water District including Ceres, Turlock, and Waterford, as well as the unincorporated areas of Salida, Del Rio, Grayson and Empire, 8103 customers were on flat rate schedule or were metered but billed at a flat rate. Except for Del Rio and Grayson (the only two areas fully metered and billed as such) 2009 customers were metered and billed as such. (cid:121) The total number of customers within and outside Modesto which have meters but not currently being read is 17,117. (Appendix 3 for detailed table)

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R5: Flat and metered rate schedules

F6: A Comparison Of Similar-Sized Lots Between Del Rio and Modesto City Customers (Appendix 4, for details.) The CGJ obtained from the City of Modesto a comparison of ten similar sized lots (greater than 17, 000 square feet) within the City limits and ten within Del Rio. This City report compared the charges of both areas as to the actual metered costs in 2004 and 2005 as well as what the costs would have been if billed at a flat rate. (cid:121) In 2005, for the sampled lots, the yearly range of charges for Del Rio over a flat rate charge was between $47.88 and $633.12 with an average difference of $287.90. (cid:121) In 2005, for the sampled lots within the City, the difference compared with flat rates ranged between negative $248.36 and $556.17 with an average difference of $8.12. This was due to six of the ten customers using less water than the average flat rate charge. In viewing the lots, it was noticed that seven lots were not extensively landscaped or watered. 8 (cid:121) The one lot comparable to the landscaping of Del Rio was in the Fleur de Ville subdivision and had an increase of $499.65 more than a flat rate charge in 2005. The consumption of water for the ten Del Rio properties dropped in seven out of ten cases from 2004 to 2005. This drop is consistent with an expert’s testimony that overall, when parcels are switched from flat rates to metered rates consumption also drops. (cid:121) The average consumption for the ten Del Rio properties in 2005 was 5880 ccf (consumption cubic feet) which translates into 43,392.4 gallons per month or 1466 gallons per day (one cubic foot of water equal 7.48 gallons.) (cid:121) The average consumption for the ten Modesto properties in 2005 was 3396.7 ccf which translates into 25,407.4 gallons per month or 846.9 gallons per day. (cid:121) In order for the cost of metered water and flat rate to be equivalent, a customer with a lot size greater than 17,000 square feet would consume just over 25,000 gallons per month or an average of 840 gallons per day (2005.) (cid:121) Costs were compared for 2005 as the rates were converted in June 2004 from flat rate to metered in the Del Rio area. This resulted in part of the year being on different rate schedules.

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R6: A Comparison of similar-sized lots between Del Rio and Modesto City customers

F7: Fairness of Rates to Del Rio Del Rio is the only discrete area besides Grayson that is billed as all metered rates. Since Grayson generally has a much smaller lot size resulting in less water usage, the impact for Del Rio being metered is greater than any other single area. As the change from flat rate to metered rate in Del Rio occurred about the same time as an increase in rates it is difficult to separate the effect that each change had upon the charges for water. (cid:121) Another issue that impacted Del Rio more than other areas is that Del Rio was in the previous Zone 3 which historically paid less than Zones 1 or 2. The increased costs for Del Rio was exacerbated by being one of the few areas changed to meters, which has a greater impact on larger landscaped lot sizes as more water is consumed. (cid:121) The CGJ found no evidence to show that Del Rio was singled out to pay a different rate than any other area with the same parameters (metered large lots.) The claim by Del Rio that they pay up to ten times the cost of someone living in the City does not hold up with the evidence presented by the City. Without a comparison of all properties, both metered and flat rate, this assertion cannot be verified. It is possible that a person could pay ten times more than another if one compared the smallest lot size or least amount of water used with a metered rate on a large lot with an excessive amount of water use. This would appear to be an exception, not the rule. Del Rio does, in general, pay more than most customers due to large lot sizes, 9 usage and being exclusively metered. (cid:121) With the small sample reviewed, it is not possible to accurately predict which system costs the consumers more overall. After looking at most of the properties listed in the sample, the CGJ predicts that a parcel with a well landscaped yard, with normal grass and plants, would cost more under a metered plan. The public has been given no data from the City as to the comparability of the two rates when translated into actual monthly charges. (cid:121) In the sample of similar-sized lots, four were in the Modesto High or Mark Twain area, two in the Airport district, one in South Modesto, one in a middle class property, and one in Fleur de Ville. This sample can hardly be representative for all of Modesto. It may well reflect what areas within the City are on metered water with lot sizes of approximately one half acre in size. (cid:121) The conversion to metered water as quickly as possible for all areas that have meters but not read would be more equitable for all customers. The conversion would probably be more expensive for most customers, but more reflective of their water usage. There are now over 17,000 customers with unread meters. The City’s plan to convert to meters (outside in) (outlying areas first and gradually include inside the city limits) can be seen as unfair to the outlying areas already converted (Del Rio and Grayson.) The evidence comparing the number of meters read between 2004 and 2005 showed very little effort to convert flat rate users to metered users either within the city or in the outlying areas. In Salida, for instance, 59 parcels are on a flat rate, 819 on a metered rate, and 3516 are metered but billed at a flat rate. (cid:121) At the March 7, 2006, City Council meeting the Board passed a resolution authorizing $5,000,000 per year for the installation of water meters. This resolution was passed, without a plan stating which area would have meters installed and when such areas would be read as metered. (cid:121) While impractical, considering that all properties within a water district must be eventually metered under state law, the fairest solution is that all residential areas remain on a flat rate until all are converted to a metered rate. (cid:121) There is no way to make water rates and charges totally fair. Under a flat rate plan, there is no way to control the amount of usage nor is there an incentive to conserve. Those customers paying under a metered rate appear to be paying more than flat rate customers with similar, well landscaped properties. Those properties with very little landscape or outside watering generally pay less under a metered rate. Paying for usage seems to be the most equitable solution. Ultimately, as previously stated, all properties in California within a water district must be metered. 10

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R7: Fairness of Rates to Del Rio

F8: Ownership of Water System Del Rio and Waterford were offered the opportunity to obtain part of the Del Estes water system from Modesto that previously serviced their area. Waterford, thus far, has been satisfied with Modesto handling the system, but a new subdivision in Waterford has set up its own district which is not associated with Modesto. Del Rio elected not to obtain its own water district from the City. The complainant stated that Del Rio probably could not get the votes from its own residents necessary to obtain the district from Modesto. This was primarily due to the fear of potential costs for future repairs. The former attorney for the City of Modesto testified that the City would have been willing to “give it to them.”

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R8: Ownership of water system 3 METHOD OF INVESTIGATION The CGJ obtained the following documents:

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R9: Information regarding lawsuits (cid:121) Richmond v. Shasta Community Services District (2004) 32 Cal 4th 409 (cid:121) Bighorn Desert View Water Agency v. Beringson (July 20, 2004) 120 Cal. App 4th 890 (Supreme Court docket S127525)

R10: Letter from Morrison & Foerster, a law firm representing the Del Rio Homeowners Association, November 22, 2004

R11: Copies of water bills from a Del Rio customer for 2005

R12: State of California “ Accounting Standards and Procedures For Counties” section 1.08, b (1)

R13: Minutes of the Modesto City Council, March 7, 2006 Persons interviewed: